The Municipal Bond Market in a Changing Economy

Due primarily to the Tax Reform Act of 1986, the municipal bond market has undergone great changes in the last two years. Because of severe limitations on the purposes for which and processes by which tax-exempt bonds can be issued, the volume of new issues has fallen dramatically. Interest rates, while volatile, have been declining. The municipal market, although dealing with various cross-currents of unrest emanating from credit quality problems, changing buyers, disclosure concerns, and adverse court decisions, nevertheless appears well positioned to concentrate its resources on its traditional role in the financing infrastructure.