Climate risk is reshaping muni credit
Some local governments are issuing municipal bonds to protect against climate risks. Here's where Nuveen sees opportunity.
TL;DR
- Municipal bonds are being issued to fund infrastructure projects and climate risk protection.
- The frequency and cost of climate-related disasters have significantly increased.
- There's a potential shift of disaster preparedness and response costs from the federal government to state and local levels.
- Municipalities are issuing debt to harden infrastructure against natural disasters.
- Muni bond interest income is free from federal tax and potentially local taxes.
- Yields on long-dated municipal bonds are attractive, offering high tax-equivalent yields.
- The municipal market may be behind in assessing and pricing climate risks.
- Investors should identify communities managing climate risk and reward those that have invested in hardening infrastructure.
- Examples of municipalities investing in climate resilience include Miami, Battery Park City Authority in New York, and the Metropolitan Water Reclamation District of Greater Chicago.