I'm Ann Ferentino. I am a Portfolio Manager and a Senior Analyst at Federated Hermes.
What might the American Rescue Plan mean for munis?
On March 11th this year, President Biden signed into law the 1.9 trillion COVID-19 stimulus bill, the American Rescue Plan, dramatically improving the overall municipal credit outlook. This bill provides record amount of funding on top of earlier stimulus measures. The muni market has benefited from the stimulus bills with more than 1.1 trillion directly benefiting muni bond sectors. The muni bond market has about four trillion in debt outstanding. This is accelerating credit stabilization and it's tightening credit spreads. And what is meaningful about this last COVID relief bill is that the American Rescue Plan includes direct aid to state and local governments. The second largest single spending item for the bill is 350 billion earmarked for state, local, tribal and US territories. We cannot understate the significance of the large fiscal and mostly unrestricted transfers that will be paid directly to governments. The funding provides relief for state and local government's budgets that were hit with the pandemic-induced lockdown.
But for many, the aid is actually more than the losses, especially because for these government muni issuers, many of them, the revenues have proved much better than they initially feared. Other muni revenue sectors are also benefiting. Aid is being paid directly to healthcare, transportation, education and housing sectors. There's over 30 billion for public transit. There's eight billion for airports. That total is 20 billion that's been paid to airports in stimulus. There's 39 billion in this bill for higher education. And overall, the total funding to all these sectors from the past three stimulus bills is over 1.1 trillion and rating agencies are taking note. We are seeing rating agencies moving whole sectors to stable and positive from negative and for individual credits for especially like for the speculative states, we have seen positive rating actions for New Jersey, Illinois and Connecticut. We expect that this 1.1 trillion in stimulus paid to the muni market to be a tailwind to the muni market's relative performance for the foreseeable future.
Disclosure: Views are as of April 13, 2021 and are subject to change based on market conditions and other factors. These views should not be construed as a recommendation for any specific security or sector. Past performance is no guarantee of future results. Bond prices are sensitive to changes in interest rates, and a rise in interest rates can cause a decline in their prices. Municipal bond income may be subject to the federal alternative minimum tax and state and local taxes. Federated Investment Management Company 21-30191 (4/21)