Everyone has been very focused on two parts of the current tax deal: its affect on their income (very understandable), and how it will affect stocks (also understandable). However, there is one major effect of the tax plan that has not been discussed much at all-its effect on corporate bonds. The bottom line for companies is that the new tax plan would allow them to bring a lot of money home (reducing their need to issue debt), and at the same time, get rid of the corporate interest deduction, making it more expensive to issue bonds. Because of this, the amount of new issuance looks set to fall, which would likely have the effect of boosting demand, and prices, for existing corporate debt.
FINSUM : This looks like it has the makings for a big rally, as good bonds become more scarce at exactly the same time as baby boomers need more income for retirement.
- interest deduction
- corporate bonds
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of NASDAQ, Inc.