Climate Risk is Reshaping Municipal Credit and Income Opportunities
Municipal bond markets are evolving as state and local governments increasingly issue debt to fund infrastructure projects aimed at mitigating climate risk. With a rise in billion-dollar weather-related disasters, municipalities are using bonds like general obligation and revenue bonds for flood control and disaster preparedness. Dan Close of Nuveen notes that over $63 billion worth of such projects is underway as federal support shifts toward local responsibility. Muni bond yields remain attractive due to their tax-exempt status, offering high taxable-equivalent returns in higher-tax states. However, not all municipalities are adequately addressing climate risks or receiving appropriate credit for infrastructure improvements. Investors must assess how well a community manages these threats before investing. Examples include Miami's $400 million Forever Bond and New York’s Battery Park City Authority flood barrier projects. Nuveen highlights opportunities in funds like the Nuveen All-American Municipal Bond Fund (FLAAX), which holds bonds from cities actively addressing climate risks, suggesting that well-prepared municipalities may be undervalued compared to riskier areas.
Topics: climate risk disaster recovery infrastructure funding municipal bonds