Cities
Taking Advantage of the Infrastructure Boom: The Case for Taxable Municipal Bonds
The Case for Taxable Municipal Bonds for Investors
If you’re a homeowner, there are probably a few things you’ve been neglecting to do. Perhaps the kitchen needs upgrading, or the roof needs replacing. We tend to procrastinate on these improvements due to large renovation costs, until it hits a point where we can’t ignore them anymore. This is the state that U.S. infrastructure has reached—on a national scale.
Today’s infographic from New York Life Investments highlights the level of disrepair in U.S. infrastructure. It also explores why taxable municipal bonds, which will finance the required infrastructure upgrades, provide such an interesting investment opportunity.
Falling Apart at the Seams
The American Society of Civil Engineers (ACSE) regularly assesses the nation’s infrastructure—things like bridges, airports, and drinking water—and scores it in a ‘report card’. After decades of neglect, the U.S. only scored a D+ in 2017.
The ASCE estimates that $4 trillion is needed to bring infrastructure up to a B grade, $1.3 trillion of which will be provided by state and local governments.
The urgent needs for increased investment in America’s infrastructure continue to grow and our nation’s economic vitality and quality of life are at stake.
— Ed Mortimer, U.S. Chamber Vice President of Transportation and Infrastructure
U.S. municipal bonds will be the primary funding source for this massive financing need. These bonds are quite popular with individual U.S. investors, as the interest income from most municipal bonds is not subject to federal income tax.
However, the U.S. tax code limits the volume of non-taxable bonds issued, and the purposes for issuing them. As a result, many local and state governments have been turning to taxable municipal bonds to finance their infrastructure projects.
The Muni Opportunity
Taxable municipal bonds are a potentially attractive investment for many reasons.
1. Competitive Historical Yield and Strong Returns
In the last decade, a lagging global economy led to historically low interest rates—many sovereign (national) bonds fell into negative territory. Taxable municipal bonds provided an alternative source of yield potential, outpacing the yields of comparable treasury bonds in some cases.
Not only that, but in the post-crisis era, taxable municipal bonds have averaged a return of 6.9% per year, beating the 4.6% performance on U.S. corporate investment-grade bonds, a staple in most institutional portfolios.
2. High-Quality, Stable Credit Ratings
Most municipal bonds are high quality with low default rates, making them attractive to risk-conscious investors.
| U.S. Municipals | Global Corporates | |
|---|---|---|
| Rating Spread | Over 76% rated A+ or better | Only about 10% are AA rated |
| Tiny portion below investment grade | Nearly half are below investment grade | |
| Default Rate | 0.81% for those rated BAA by S&P | 0.84% for those rated AAA by S&P |
Historically, municipal bond ratings have also been far more stable than that of global corporates.
3. Inefficient pricing
The municipal bond market is highly fragmented, and most issues are too small to be included in a market index.
This market fragmentation, combined with limited sell-side research and many buy-and-hold investors, often leads to inefficient pricing. Active investors have the potential to generate higher returns by applying their credit research and trading skills.
4. Low Correlations
Correlation measures the degree to which two securities move in relation to each other. In general, taxable municipal bonds have a low correlation to other fixed-income sectors. This means they help provide portfolio diversification and reduce volatility.
5. Longer durations
Since taxable municipal bonds fund long-term capital projects, they are usually financed with longer maturing bonds. Institutional investors welcome this source of long-duration assets, as they can match them up with their long-dated obligations.
A Compelling Portfolio Addition
Taxable municipal bonds have many positive qualities that make them a strong contender for investment. When added to a diversified fixed-income portfolio, they may also improve the risk/return profile.
As the U.S. begins to revitalize its infrastructure, taxable municipal bonds present a strong—and often overlooked—opportunity for investors.
Chart of the Week
Global Shutdown: Visualizing Commuter Activity in the World’s Cities
Amid the COVID-19 crisis, cities are dramatically slowing down. Today’s chart demonstrates the impact of lockdowns on commuter activity worldwide.
Staying Put: The COVID-19 Commuter Decline
Every day, millions of people worldwide rely on public transport networks to get around. But in times of crisis, bustling cities with high volumes of commuter traffic can come to a dramatic halt.
Today’s chart breaks down daily data from Citymapper’s Mobility Index, according to trips planned on the transport app across 41 select cities.
The results paint a unique picture of how social distancing and lockdown measures are impacting commuter and economic activity in major urban hubs.
Cities With the Biggest Drops in Activity
As the government response to the COVID-19 pandemic intensifies and people are urged to stay home, transit activity is dropping everywhere.
However, some areas are seeing more of a reduction in activity than others. Where has activity declined the most over the month?
| Rank | City | Country | 04-Mar | 11-Mar | 18-Mar | 25-Mar | Total Change (%) |
|---|---|---|---|---|---|---|---|
| #1 | Vienna | 🇦🇹 Austria | 128% | 92% | 9% | 6% | -122% |
| #2 | Lisbon | 🇵🇹 Portugal | 128% | 108% | 24% | 12% | -116% |
| #3 | Istanbul | 🇹🇷 Turkey | 117% | 103% | 20% | 10% | -107% |
| #4 | Barcelona | 🇪🇸 Spain | 105% | 86% | 6% | 4% | -101% |
| #5 | Brussels | 🇧🇪 Belgium | 107% | 96% | 15% | 7% | -100% |
| #6 | São Paolo | 🇧🇷 Brazil | 112% | 113% | 33% | 12% | -100% |
| #7 | New York City | 🇺🇸 USA | 104% | 85% | 17% | 7% | -97% |
| #8 | Madrid | 🇪🇸 Spain | 100% | 65% | 5% | 4% | -96% |
| #9 | Los Angeles | 🇺🇸 USA | 108% | 81% | 23% | 13% | -95% |
| #10 | Melbourne | 🇦🇺 Australia | 113% | 110% | 53% | 20% | -93% |
*Note: Data measures the % of city moving compared to 100% baseline.
Overall, Vienna and Lisbon are the cities with the biggest average drop in commuter activity over the past few weeks. This decline in mobility is correlated with a spike in the proportion of COVID-19 cases in the population:
- Austria
March 4: 2.6 per million
March 25: 586 per million - Portugal
March 4: 0.4 per million
March 25: 232 per million
That said, not every city is seeing a precipitous decline in activity — let’s look at those next.
Standing Still, or On Guard
Cities that saw lower decreases in commuter activity over recent weeks can generally be slotted into three categories:
- Cities that were already on or near shutdown (Seoul, Milan)
- Cities that have so far avoided major impacts from the virus (St. Petersburg)
- Cities that successfully mitigated spread (Singapore)
Here are the 10 cities on the list that saw the lowest changes in activity:
| Rank | City | Country | 04-Mar | 11-Mar | 18-Mar | 25-Mar | Total Change (%) |
|---|---|---|---|---|---|---|---|
| #1 | Seoul | 🇰🇷 South Korea | 48% | 43% | 41% | 37% | -11% |
| #2 | Hong Kong | 🇭🇰 China (SAR) | 50% | 52% | 48% | 37% | -13% |
| #3 | Singapore | 🇸🇬 Singapore | 90% | 88% | 79% | 62% | -28% |
| #4 | Milan | 🇮🇹 Italy | 43% | 10% | 5% | 3% | -40% |
| #5 | Tokyo | 🇯🇵 Japan | 63% | 54% | 42% | 21% | -42% |
| #6 | St Petersburg | 🇷🇺 Russia | 114% | 114% | 85% | 69% | -45% |
| #7 | Moscow | 🇷🇺 Russia | 112% | 113% | 75% | 54% | -58% |
| #8 | Rhine-Ruhr | 🇩🇪 Germany | 75% | 72% | 28% | 15% | -60% |
| #9 | Stockholm | 🇸🇪 Sweden | 97% | 83% | 34% | 32% | -65% |
| #10 | Lyon | 🇫🇷 France | 75% | 97% | 6% | 4% | -71% |
*Note: Data measures the % of city moving compared to 100% baseline.
St. Petersburg is still seeing commuter activity at 69% of normal levels as of March 25th, as the proportion of confirmed COVID-19 cases in Russia remains low, at roughly 3.4 per million.
Milan has the lowest activity of any city at 3%, and has been in shutdown for most of the month.
Although Singapore’s total COVID-19 cases grew from 18.8 to 95.4 per million, it still has 62% commuter activity. Interestingly, Singapore is one of the few countries that has been able to properly control and manage its COVID-19 outbreak.
Biggest Weekly Declines
As the month progressed, various cities showed stark one-week declines in commuter activity based on official healthcare recommendations and growing case numbers.
After a government lockdown announced on March 9, Rome experienced the sharpest decline of -75% commuter activity in the week from March 4 to March 11. Currently, there is only 5% activity compared to usual, similar to Milan.
In the second week of March, COVID-19 cases in France jumped fourfold, from 27.3 per million to 118.4 per million people. As a result, Lyon saw a whopping -91% drop in commuter activity—going from 97% on March 11 to 6% on March 18.
Over the past week, as cases in Australia reached 95 per million, Sydney and Melbourne exhibited the highest average declines at -36% and -33% in commuter activity respectively.
Full List of 41 Cities
Here’s the full list of cities, courtesy of Citymapper.
| City, Country | March 4 | March 11 | March 18 | March 25 | Total Change (%) |
|---|---|---|---|---|---|
| Vienna, Austria | 128% | 92% | 9% | 6% | -122% |
| Lisbon, Portugal | 128% | 108% | 24% | 12% | -116% |
| Istanbul, Turkey | 117% | 103% | 20% | 10% | -107% |
| Barcelona, Spain | 105% | 86% | 6% | 4% | -101% |
| Brussels, Belgium | 107% | 96% | 15% | 7% | -100% |
| São Paulo, Brazil | 112% | 113% | 33% | 12% | -100% |
| New York City, U.S. | 104% | 85% | 17% | 7% | -97% |
| Madrid, Spain | 100% | 65% | 5% | 4% | -96% |
| Los Angeles, U.S. | 108% | 81% | 23% | 13% | -95% |
| Melbourne, Australia | 113% | 110% | 53% | 20% | -93% |
| Amsterdam, Netherlands | 98% | 86% | 13% | 6% | -92% |
| Washington DC, U.S. | 97% | 82% | 15% | 6% | -91% |
| San Francisco, U.S. | 96% | 65% | 9% | 6% | -90% |
| Boston, U.S. | 97% | 77% | 16% | 7% | -90% |
| Chicago, U.S. | 97% | 92% | 16% | 7% | -90% |
| Montréal, Canada | 103% | 104% | 31% | 14% | -89% |
| Paris, France | 95% | 89% | 8% | 6% | -89% |
| London, UK | 100% | 91% | 36% | 12% | -88% |
| Manchester, UK | 100% | 91% | 42% | 13% | -87% |
| Sydney, Australia | 106% | 99% | 56% | 20% | -86% |
| Mexico City, Mexico | 109% | 110% | 53% | 23% | -86% |
| Rome, Italy | 91% | 16% | 6% | 5% | -86% |
| Copenhagen, Denmark | 97% | 80% | 11% | 11% | -86% |
| Berlin, Germany | 93% | 86% | 26% | 12% | -81% |
| Birmingham, UK | 99% | 91% | 45% | 18% | -81% |
| Toronto, Canada | 97% | 91% | 32% | 19% | -78% |
| Vancouver, Canada | 94% | 89% | 38% | 16% | -78% |
| Philadelphia, U.S. | 89% | 85% | 22% | 13% | -76% |
| Monaco, Monaco | 81% | 50% | 12% | 7% | -74% |
| Hamburg, Germany | 85% | 72% | 20% | 12% | -73% |
| Seattle, U.S. | 80% | 51% | 19% | 8% | -72% |
| Lyon, France | 75% | 97% | 6% | 4% | -71% |
| Stockholm, Sweden | 97% | 83% | 34% | 32% | -65% |
| Rhine-Ruhr, Germany | 75% | 72% | 28% | 15% | -60% |
| Moscow, Russia | 112% | 113% | 75% | 54% | -58% |
| St Petersburg, Russia | 114% | 114% | 85% | 69% | -45% |
| Tokyo, Japan | 63% | 54% | 42% | 21% | -42% |
| Milan, Italy | 43% | 10% | 5% | 3% | -40% |
| Singapore, Singapore | 90% | 88% | 79% | 62% | -28% |
| Hong Kong, Hong Kong | 50% | 52% | 48% | 37% | -13% |
| Seoul, South Korea | 48% | 43% | 41% | 37% | -11% |
*Note: Data measures the % of city moving compared to 100% baseline.
The COVID-19 pandemic is affecting everything from the stock market to the environment. With cities actively working to keep populations in isolation and healthy during this time, it may take a while before commuter activity returns to normal.
Business
Flying High: The Top Ten Airline Routes by Revenue
This visualization tracks the high-value routes that generate the most revenue for airlines – primarily links between the world’s financial centers
Flying High: The Top 10 Airline Routes by Revenue
The airline industry is a tough business. Profit margins are narrow, airplanes are expensive to run and maintain, and government regulation and taxation can be onerous and unpredictable.
In addition, demand can stall by the outbreak of disease, recession, war, or terrorism. So when a company has a winning airline route, it makes all the difference to a company’s bottom line.
Today’s visualization uses data from OAG Aviation Worldwide, which tracked the airline routes that generated the most revenue from April 2018 to March 2019.
Top 10 Highest Revenue Routes by Airline
North American routes dominate the global rankings. However, it is the connections from the U.S Northeast and Europe that generate the most revenue and often the most delays.
Only one route breaks the billion dollar barrier: British Airways’ service between London Heathrow Airport (LHR) and New York’s John F. Kennedy Airport (JFK).
| Airline | Airport Pair | Countries | Total Revenue US$ 2018/19 |
|---|---|---|---|
| British Airways | JFK-LHR | 🇺🇸🇬🇧 | $1,159,126,794 |
| Qantas Airlines | MEL-SYD | 🇦🇺 | $849,260,322 |
| Emirates | LHR-DXB | 🇬🇧🇦🇪 | $796,201,645 |
| Singapore Airlines | LHR-SIN | 🇬🇧🇸🇬 | $735,597,614 |
| United Airlines | SFO-EWR | 🇺🇸 | $689,371,368 |
| American Airlines | LAX-JFK | 🇺🇸 | $661,739,368 |
| Qatar Airways | LHR-DOH | 🇬🇧🇶🇦 | $639,122,609 |
| Cathay Pacific Airways | HKG-LHR | 🇭🇰🇬🇧 | $604,595,063 |
| Singapore Airlines | SYD-SIN | 🇦🇺🇸🇬 | $549,711,946 |
| Air Canada | YVR-YYZ | 🇨🇦 | $541,122,509 |
Air Canada’s route between Vancouver and Toronto bottoms out the list with $541 million of revenue in 2019. Low population density, high infrastructure costs, and an aviation industry that is essentially an oligopoly, are all factors driving up ticket costs in Canada.
North America, Top 10 Highest Revenue Routes by Airline
Here’s a look at only the top-grossing routes connected to North America, including the prior ones that made the global list.
| Airline | Airport Pair | Countries | Total Revenue US$ 2018/19 |
|---|---|---|---|
| British Airways | JFK-LHR | 🇺🇸🇬🇧 | $1,159,126,794 |
| United Airlines | SFO-EWR | 🇺🇸 | $689,371,368 |
| American Airlines | LAX-JFK | 🇺🇸 | $661,739,788 |
| Air Canada | YVR-YYZ | 🇨🇦 | $541,122,509 |
| British Airways | BOS-LHR | 🇺🇸🇬🇧 | $523,527,241 |
| Air France | JFK-CDG | 🇺🇸🇫🇷 | $486,378,698 |
| United Airlines | LAX-EWR | 🇺🇸 | $479,908,312 |
| Cathay Pacific Airways | JFK-HKG | 🇺🇸🇭🇰 | $475,514,451 |
| Delta Air Lines | LAX-JFK | 🇺🇸 | $465,130,366 |
| British Airways | LAX-LHR | 🇺🇸🇬🇧 | $452,136,502 |
Transcontinental routes dominate the domestic market with LAX–JFK appearing twice in the ranking for both American and Delta Air Lines.
Asia, Top 10 Highest Revenue Routes by Airline
Despite Asia’s rise as an economic superpower, there are no routes that break the billion dollar barrier. Singapore Airlines’ Singapore (SIN) to London’s Heathrow (LHR) tops the list, generating $736 million in 2019.
| Airline | Airport Pair | Countries | Total Revenue US$ 2018/19 |
|---|---|---|---|
| Singapore Airlines | SIN-LHR | 🇸🇬🇬🇧 | $735,597,614 |
| Cathay Pacific Airlines | HKG-LHR | 🇭🇰🇬🇧 | $604,595,063 |
| Singapore Airlines | SIN-SYD | 🇸🇬🇦🇺 | $549,711,946 |
| Vietnam Airlines | SGN-HAN | 🇻🇳 | $488,487,259 |
| Cathay Pacific Airlines | HKG-JFK | 🇭🇰🇺🇸 | $475,514,451 |
| Japan Airlines | OKA-HND | 🇯🇵 | $447,224,346 |
| Singapore Airlines | CGK-SIN | 🇮🇩🇸🇬 | $436,905,694 |
| Japan Airlines | FUK-HND | 🇯🇵 | $431,457,469 |
| Singapore Airlines | SIN-MEL | 🇸🇬🇦🇺 | $414,276,407 |
| Cathay Pacific Airlines | HKG-SIN | 🇭🇰🇸🇬 | $389,910,239 |
The routes that dominate Asia connect the financial hubs of London, New York, Singapore, and Hong Kong. There are also two domestic routes in Japan, connecting both Fukuoka (FUK) and Okinawa (OKA) to Tokyo’s Haneda (HND) airport.
Africa, Top 10 Highest Revenue Routes by Airline
At the top of the ranking in Africa is Johannesburg (JNB) to Dubai International Airport (DXB) with revenues of $315 million. Dubai has become an important hub for high value flights arriving and departing Africa, a position that may prove profitable as air traffic on the continent increases in coming years.
| Airline | Airport Pair | Countries | Total Revenue US$ 2018/19 |
|---|---|---|---|
| Emirates | JNB-DXB | 🇿🇦🇦🇪 | $315,678,326 |
| British Airways | JNB-LHR | 🇿🇦🇬🇧 | $295,167,492 |
| Saudi Arabian Airlines | CAI-JED | 🇪🇬🇸🇦 | $242,155,949 |
| TAAG Angola Airlines | LAD-LIS | 🇦🇴🇵🇹 | $231,155,949 |
| South African Airlines | JNB-CPT | 🇿🇦 | $184,944,128 |
| Emirates | CAI-DXB | 🇪🇬🇦🇪 | $181,392,011 |
| Emirates | CPT-DXB | 🇿🇦🇦🇪 | $176,743,498 |
| Air France | ABJ-CDG | 🇨🇮🇫🇷 | $174,986,272 |
| British Airways | CPT-LHR | 🇿🇦🇬🇧 | $174,605,201 |
| Emirates | MRU-DXB | 🇲🇺🇦🇪 | $163,952,609 |
Despite the smaller earnings compared to larger markets, some airline companies see the potential for growth in Africa. Virgin Atlantic will fly a route between London’s Heathrow and Cape Town in South Africa, while Qatar Airlines acquired a stake in RwandAir.
Financial Hubs
The cities that appear in the top revenue ranking are revealing. Since business and first class travelers are such an important revenue driver, it makes sense that connections between the world’s financial hubs are delivering big value to airlines.
As Asian and African economies continue to evolve, what route could be the next billion dollar route for airlines?
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