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.
Growth and Decline: Visualizing U.S. Population Change by County
Rural counties across the U.S. are losing residents as large cities and the coasts are growing. This map shows U.S. population change by county.
Visualizing U.S. Population Change by County (2010-2018)
The American Heartland continues to feed the growth of urban centers — not only with its agricultural products and natural resources, but with its people as well.
Across the nation, coastal urban centers are adding new citizens, while rural counties are seeing their populations decline. Outside of this general trend, fracking has created some rare pockets of growth in rural areas, while coal mine closures have had the opposite effect.
Today’s map comes to us from Reddit user jinkinson, and it maps U.S. population change by county from 2010 to 2018, using data from the U.S. Census Bureau.
From 2010 to 2018, the total United States population increased by 6% from 308,745,538 to 327,167,434. However, it’s clear that not all counties participated in this uptrend.
There are 3,142 counties counted as part of this map (Puerto Rico and U.S. territories excluded). Of these, 1,489 experienced positive growth, while 1,653 saw a decline.
Which Counties are Growing the Fastest?
America’s economy has grown for over a decade, but that growth increasingly concentrates in 1% of the nation’s counties.
In fact, just 31 counties were responsible for 32.3% of the U.S. gross domestic product (GDP) in 2018, according to data from the Bureau of Economic Analysis.
Although economic concentration tells part of the story, a view of changing population patterns can help us see where physical growth is happening across the country.
Top 20 Counties for U.S. Population Growth
|Rank||State||County Name||2010 Population||2018 Population||% Change|
|#1||North Dakota||McKenzie County||6,360||13,632||114%|
|#3||North Dakota||Williams County||22,398||35,350||58%|
|#14||Texas||Fort Bend County||585,375||787,858||34%|
|#16||Florida||St. Johns County||190,039||254,261||34%|
|#17||North Dakota||Mountrail County||7,673||10,218||33%|
|#19||South Dakota||Lincoln County||44,828||58,807||31%|
At the top of the list is McKenzie County, North Dakota, which experienced a growth of 114% in its population from 2010 to 2018. This is due to the shale gas industry that flourished in the area. Interestingly, all of North Dakota’s active oil and gas rigs are in just four counties: McKenzie, Dunn, Williams, and Mountrail, three of which make the top 20 list above.
The fracking boom also fueled growth in Texas, where six counties made the list.
However, immediate economic success built on fracking sands and sensitive commodity prices may not be sustainable over the longer term. In fact, counties from a previous energy era are already seeing what happens when demand dries up.
Which Counties are Declining the Fastest?
If you look at a map of coal operations in the U.S. and compare it to the list of declining counties below, a stark pattern appears.
Half of country’s coal miners work in just 25 counties, and as mines close there are fewer economic opportunities available in those areas.
Top 20 Counties for U.S. Population Decline
|Rank||State||County Name||2010 Population||2018 Population||% Change|
|#3||West Virginia||McDowell County||22,113||18,223||-18%|
|#11||South Carolina||Allendale County||10,419||8,903||-15%|
|#19||Colorado||Kit Carson County||8,270||7,163||-13%|
While coal counties have grim figures due to the changing domestic energy story, it’s Alexander County in Illinois that tops the list with a 26% decline in population over the time period.
In fact, the harsh reality is that 93% of Illinois’ counties have seen a decrease in population between 2010-2018.
State by State: Winners and Losers
The number of declining counties within a state reveals a larger picture. Visual Capitalist aggregated county level data to reveal the patterns of U.S. states.
|State||# Counties with Negative Growth||# Counties with Positive Growth||% of Counties with Negative Growth|
|District of Columbia||0||1||0%|
Illinois tops the list with the most people leaving its counties, while areas such as the District of Columbia and Delaware experienced no declines.
What happens to a state where the majority of its counties are losing residents?
The Big Picture
Americans are seeking out opportunity where it resides: in the cities. The pursuit of fracking oil and gas created opportunities in regions beyond the coast or traditional urban centers.
However, the long term trend of concentration of people on coasts and in major urban centers will continue to impact infrastructure spending, labor mobility, and economic activity. America no longer derives the majority of its economic success from rural counties and industries.
It is unclear how rural counties will fare as their denizens continue to dwindle. What is clear is that the few that rely on natural resources for success will continue to experience the ups and downs of volatile commodity markets.
Invisible Stars: Mapping America’s Rural Light Pollution
This unique map subtracts population from nighttime light output, giving us a unique perspective into America’s rural light pollution hot spots.
Invisible Stars: Mapping America’s Rural Light Pollution
From the bright lights of Times Square to the high-powered flood lights of a suburban Walmart, we expect our cities to give off a certain amount of light pollution. Even though our view of the universe is largely blotted out around city centers, there’s a measure of comfort in knowing an inspiring view of a starry night is only a short drive away.
Increasingly though, economic activity in America’s rural spaces is casting a glow into the sky, and now four out of five people in North America cannot see the Milky Way at night.
Today’s map, from geographer and journalist, Tim Wallace, is a different perspective on light pollution in the United States. The map was created by subtracting population from light output, which highlights areas that throw off more light than predicted given their population density.
On this style of map, it isn’t the glowing metropolitan centers of New York and Los Angeles that stand out, but regions like the oil-rich corner of South Dakota or the final leg of the Mississippi River. Let’s zoom in and investigate what’s happening in these unexpected illumination zones.
Oil & Gas
Some of the most prominent patterns on the map appear in regions where shale oil is being extracted.
In a relatively short amount of time, America became the largest oil producer on the planet. One of the major factors that fueled record production for shale oil producers was the proliferation of multi-well pad drilling — when multiple wells are drilled from a single drill site. From the air, it’s easy to spot these well formations spreading across the landscape, but the effect is even more pronounced at night.
At times, oil production is so strong that drillers flare the excess natural gas. In North Dakota alone, there are nearly 14,000 producing wells, and the resulting flares are what create the distinctive grid patterns on the map.
One of the brightest areas per capita in the country is Loving County, Texas. The county has around 100 residents, but more than 6,000 drilled wells.
Another point of interest on the map is Louisiana’s “petrochemical corridor”, running between New Orleans and Baton Rouge. An overhead view of Southern Louisiana in the daytime will be punctuated by the “ribbon farms” flanking the Mississippi River — a nod to the region’s history of French settlement.
At night though, a different scene emerges. Over 100 sprawling petrochemical facilities run by companies like Dow Chemical and Union Carbide dot the landscape, a patchwork of highly-illuminated plots.
Some types of infrastructure are typically located away from the city center. Airports, power stations, and racetracks, for example, need a lot of space and aren’t the most popular neighbors.
Another type of facility has been replacing farmland in recent years — logistics hubs. Many of the bright spots on the map outside cities show the warehouses and sortation centers that feed our growing demand for e-commerce.
In the example above, companies like Amazon, Home Depot, Dollar Tree, and Ikea have all clustered their facilities in the sparsely populated farmland south of Joliet, Illinois. This trend is repeated around the country, resulting in the “halos” of light that ring most cities on the map.
Flipping the Switch on Light Pollution
Though light isn’t toxic or overtly damaging to the natural landscape, it can still have a serious impact on wildlife, as well as blunting the beauty of the night sky.
The good news is that light is one of the easiest forms of pollution to prevent. New technologies and lighting techniques aren’t just good for our night skies, they’re generally more energy efficient as well.
Just as economic incentive lured buildings and infrastructure to America’s natural spaces, it may be energy efficiency that helps us return more of the night sky to its natural state.
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