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00:00It's time now for Muni Moment coming off the back of those Fed meeting minutes of course talking a lot about some of the rising rates and inflationary concerns of course still being top of mind. For more on the impact of course of what that means for state local government debt. I'm pleased to welcome Christopher Brigati managing director of municipal investments for Valley Bank. And I want to talk about those meeting minutes because there were zero mentions of recession. And I'm stealing this data from BMO Capital Markets Ian Lee who is a friend of this program. But 90 mentions of inflation. What is that telling you about the path forward for rates and of course your muni bonds. Sure. I mean generally. Thanks for having me. Of course. Generally speaking when we're talking about the inflation impacts upon the markets going to lead to higher rates and the fact that the impetus and the real reason they spoke about it so much was to really put their best foot forward to show they're really trying to be proactive I think was really impactful and is really going to drive the market. That being said interest rates go higher. Munis will go along with that. We're really following the longer term rate picture as well. It's interesting that we have a chart in the last two years showing the munis actually haven't underperformed corporates. I think in the last two years or so there's a little bit of some defensive outperformance there. How much longer do you expect that to continue. You know I think it's going to last a little bit longer this this year especially in the reason being a supply demand picture is really helpful towards munis. Supply is kind of limited in demand remains strong. People want that tax free income. They want to do what they can to be defensive in their portfolios. And the fact that municipals have kind of outperformed thus far kind of might be a little bit of a self-fulfilling prophecy and allow them to continue to be present in the space in buying debt where they can. We have great charts showing munis as a percent of treasuries. We talked about that is the muni treasury ratio. When it's above hundred you see a lot of crossover buyers. But now that treasuries are getting 3 3 1/2 percent are this crossover buyers flocking to more full faith and credit and not so much in the money market. They did for a brief period of time back in May. We were over 100 percent in 10 years and 30 years as well. Prior to that last year it was well below 65 percent and 10 years for much of the year. And so that really leads to a little bit of a challenge for the market. Right now it's about ninety one ninety two percent which is really the long term average. So it's just kind of fair value right now. It's not really calling outside investors come into the space as much as you would think. I was reading a report from I think Fitch or one of the rating companies who was talking a lot about in these inflationary environments. How are you thinking about airport. Some of the travel sort of classic reopened in sectors. How do you think about that when it comes to credit quality for airports toll roads bridges etc.. You know I lump them in also with destination locations. Think of Las Vegas think of where people want to go on vacation et cetera. And convention centers are really heavily impacted by those sort of impacts. And we're really that's going to do is drive people away from it which drives revenue away which creates a little bit of a challenge for them to can maintain their credit ratings in the long run. How are they position. No. If we're thinking I know that the Fed didn't mention recession but if that's sort of in the next year or two in the Zeit Geist if they're already facing some pressure from inflation how then do they shore up those budgets to prepare for what could be a recession. A lot of it comes down to how they manage for the short term and near-term budget personnel wages. You know those are higher. So they're dropping personnel. They're cutting back. I was recently on vacation and we had room service every other day. Yeah. Like those things you know are really helping them maintain those those revenues is revenue ratios rather at a relatively good level but it's really a difficult environment for them. Talk to me about sort of in the face of rising rates how you're thinking about duration. I know within the corporate sector maybe there's a duration investment grade but maybe high yield has that shorter modified duration. So you get that defensiveness built in. How do you think about that as you think of it in a couple of ways. One is the structure of the bonds whether it's a higher coupon or a low coupon debt. And we're really finding some value in opportunity to one weather the storm of higher rates in higher yielding. I'm sorry higher coupon right. 5 percent 4 percent coupons where you're looking at 3 percent handles which were really hammered in the past six months. You've got to be very careful of that. And the second thing is structure in terms of calls really managing that duration by having a 5 percent coupon with us three or four or five year call. You're really kind of setting some ballast in the portfolio. And that really helps investors. Final question here. A few to pick one duration of credit. I always have to go credit. I'm concerned about credit in the long run because that can get more difficult. So you really got to dig into the weeds and understand that whether it's a GEO or a ref where those cash flows coming from. How are they managing their income and the revenue stream. Credit can go downhill really fast.

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How Fed's Inflation Fight May Impact State, Local Debt

Chris Brigati, Valley Bank managing director of municipal investments, takes a look at how Federal Reserve policy will impact the municipal bond market. He speaks with Bloomberg's Taylor Riggs on "Bloomberg Markets. The Close." (Source: Bloomberg)

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