The outcome of Tuesday's election is expected to have broad implications across the market, including municipal bonds.
The spotlight has been on the battle for congressional control and whether Democrats will wrest the House of Representatives, the Senate or both from Republicans. But for the muni market, what happens at the state level could have bigger repercussions — at least in the near term.
There is an array of initiatives on ballots around the nation that could change tax laws and add to bond supply. Taxes matter to muni investors since the income received is free of federal tax, as well as state tax if the holder lives in the state where the bond is issued.
Depending on the location, ballot measures are up for approval that would either provide tax breaks, or raise taxes on the wealthy.
"It's a complete bifurcation between red and blue states," said Dan Close, head of municipals at Nuveen. "Blue states are trying to put in place graduated income tax structures, trying to capture more revenue from high-income earners. Red states are promoting affordability by trying to cut property taxes."