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.
World Cities Ranked by Average Annual Sunshine Hours
While we all see the same sky, some see it differently, depending on where they live. Today’s graphic ranks world cities by annual hours of sunshine.
World Cities Ranked by Average Annual Sunshine Hours
View the high resolution of this infographic by clicking here
While we all see the same sky, we see it a bit differently depending on where we stand.
For those in the planet’s most extreme regions, the sun doesn’t follow the same pattern of seasons as it does in more temperate regions.
Today’s visualization comes from Sleepopolis and summarizes the top cities on each continent that receive the most and least annual sunshine hours.
Ranked: Cities with the Least and Most Sunshine Hours
While the graphic groups the top five cities from each continent, the tables below highlight the top 10 cities from around the world that boast the highest and lowest annual sunshine hours.
Top 10 Cities with the Most Annual Sunshine
|City||Country||Climate||# of Sunshine Hours|
|Calama||Chile||Arid, Marine West Coast, Tundra||3,926.2|
|Las Vegas||United States||Arid||3,825.3|
|El Paso||United States||Semiarid||3,762.5|
The sunniest city on Earth is Yuma, Arizona in the U.S. As the driest city in the U.S., Yuma receives less than 200 millimeters (8 inches) of rainfall and endures roughly 100 days of 40°C (104°F) weather every year. Yuma lies between the Gila and Colorado rivers, in a lush region that produces almost 90% of leafy vegetables grown in the U.S.
Arizona boasts three of the top 10 sunniest cities in the world, including Phoenix in the fifth spot, which is the 5th most populous city in the U.S. and is known as “the Valley of the Sun”.
Perhaps unsurprisingly, Egypt also has three cities in the top 10 list, with Marsa Alam, Dakhla Oasis, and Kharga claiming the 2nd, 3rd, and 9th sunniest spots, respectively. Dakhla Oasis, or “inner oasis”, receives practically zero precipitation each year.
Top 10 Cities with the Least Annual Sunshine
|City||Country||Climate||# of Sunshine Hours|
|Totoró||Colombia||Marine West Coast||637.0|
|Tórshavn||Faroe Islands||Marine West Coast||840.0|
|Malabo||Equatorial Guinea||Tropical Wet and Dry||1,176.7|
|Buenaventura||Colombia||Tropical Wet and Dry, Humid Subtropical||1,178.0|
|Reykjavik||Iceland||Tundra, Marine West Coast||1,326.0|
|Bogotá||Colombia||Marine West Coast||1,328.0|
Although perceived as a sunny location, Colombia borders both the Caribbean Sea and the Pacific Ocean, exposing it to higher variety in weather patterns and precipitation. Colombia alone is home to three of the top 10 cities with the lowest hours of annual sunshine.
Ranking second-to-last in the number of sunshine hours, Torshavn lies between the Scottish coast and Iceland and receives roughly 37 days of sunshine every year; the average temperatures on this island barely reach above 5°C (41°F).
Our sun doesn’t shine at the same level of brightness all the time. NASA has observed that the sun goes through “solar cycles” that last roughly 11 years─brightening and dimming at relatively regular intervals and impacting how intensely we receive sunlight at any given time.
Sunshine Near the Poles
Humans typically need exposure to the sun to maintain healthy sleep habits, as our brain has been hardwired to follow natural waking and sleeping rhythms.
However, several cities experience no sun at all for several months at a time in what’s known as the “Polar Night”.
- Tromsø, Norway: winter darkness is enjoyed rather than endured, as it can last for over a month
- Svalbard, Norway: even indirect sunlight is absent, with no change in sunlight to help indicate a 24-hour day
- Dikson, Russia: receives no sunlight whatsoever in December
Wherever you live, people have been watching and tracking the movements of the sun with rapt attention for millennia, even when we couldn’t see it.
Mapped: The World’s Top 10 Cities in 2035
Cities are heavy hitters in the global economy. Where will the top 10 cities be in 2035—based on GDP, population, and annual growth?
Mapped: Where Will The Top 10 Cities Be in 2035?
Cities are the engines of the modern economy. Over half of the world now lives in urban areas, and urbanization continues to shape the trajectory of global growth in unprecedented ways.
However, the most important cities of today may be quite different than those leading the charge in the future. This week’s chart looks forward to 2035, using a report by Oxford Economics to forecast the top 10 cities by measures of economic size, population, and GDP growth rate.
Each map is categorized by one of these metrics—and depending on which one you look at, the leaders vary greatly.
Top 10 Cities by Projected GDP
The top 10 cities by gross domestic product (GDP) in 2035 will be fairly widespread. Three cities are expected to be in the U.S.—New York, Los Angeles, and Chicago. The Big Apple’s forecasted $2.5 trillion GDP likely stems from its strong banking and finance sectors.
|#1||New York||🇺🇸 United States||$2.5T|
|#3||Los Angeles||🇺🇸 United States||$1.5T|
|#4||London||🇬🇧 United Kingdom||$1.3T|
|#8||Chicago||🇺🇸 United States||$1.0T|
Four cities will be found in China, while London, Paris, and Tokyo are set to round out the last three. Interestingly, Tokyo is the #1 city today, with an estimated $1.6 trillion GDP in 2019.
Altogether, these top 10 cities will contribute an impressive $13.5 trillion in GDP by 2035. Clusters of such metropolitan areas are typically considered megaregions—which account for a large share of global economic activity.
Top 10 Cities by Future Population
Next, it’s clear that top cities by population will follow a distinct global distribution. By 2035, the most highly-populated cities will shift towards the East, with seven cities located in Asia.
|#1||Jakarta||🇮🇩 Indonesia||38 million|
|#2||Tokyo||🇯🇵 Japan||37.8 million|
|#3||Chongqing||🇨🇳 China||32.2 million|
|#4||Dhaka||🇧🇩 Bangladesh||31.2 million|
|#5||Shanghai||🇨🇳 China||25.3 million|
|#6||Karachi||🇵🇰 Pakistan||24.8 million|
|#7||Kinshasa||🇨🇩 DR Congo||24.7 million|
|#8||Lagos||🇳🇬 Nigeria||24.2 million|
|#9||Mexico City||🇲🇽 Mexico||23.5 million|
|#10||Mumbai||🇮🇳 India||23.1 million|
While Jakarta’s 38 million-strong population is expected to emerge in first place, the city may not retain its status as Indonesia’s capital for much longer. Rising sea levels and poor water infrastructure management mean that Jakarta is rapidly sinking—and the government now plans to pivot the capital to Borneo island.
On the African continent, Kinshasa and Lagos are already among the world’s largest megacities (home to over 10 million people), and will hold top spots by the turn of the century.
Population and demographics can be major assets to a country’s growth. For example, India’s burgeoning working-age demographics will present a unique advantage—and the country is projected to contain several of the fastest growing cities in the coming years.
Top 10 Cities By Estimated Annual GDP Growth
When comparing cities based on their pace of economic growth, there are some clear standouts. Average annual GDP growth across cities is 2.6%, but the top 10 surpass this by a fair amount.
The kicker? All of 2035’s major players will be found in Asia: four of the fastest-growing cities will be in mainland China, another four in India, and the last two in Southeast Asia.
At #1 by 2035 is Bangalore with an expected 8.5% annual growth forecast—its high-quality talent pool makes the city a breeding ground for tech startups. Jakarta makes another appearance, with its projected 5.2% growth at double the city average.
Shanghai finds its way onto all three lists. The commercial capital hosts the world’s busiest port, and one of China’s two major stock exchanges. These sectors could help boost Shanghai’s annual GDP growth to 5% in 2035.
Looking to the Future
Of course, any number of variables could impact these 2035 projections, from financial recessions and political uncertainty, to rapid urbanization and technological advances.
But one thing’s certain—in the coming decades, cities are where many of these factors will converge and play out.
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