Washington

Bond issuers are establishing common reserve funds to spur economic growth while also generating income, but risk is involved.

"Munis are grappling with a storm of uncertainty," said James Pruskowski, chief investment officer at 16Rock Asset Management.

A bipartisan agreement on a continuing resolution to keep the government open fell apart after intervention from President-elect Trump and Elon Musk, raising concerns about federal funds flowing to states, local governments, and infrastructure projects.

It's hard enough convincing local governments to spend money on cyber insurance that covers ransomware attacks, said Omid Rahmani, public finance cybersecurity lead at Fitch Ratings. The new and very specific threat of a hacked financing process, is "absolutely" underappreciated by the public finance industry.

As the market prepares for 2025, there's a lot of uncertainty around what the new administration will mean for the macroeconomic environment and interest rates, the latter of which may be impacted by policy around the deficit, said Steve Shutz, portfolio manager and director of tax-exempt fixed income at Brown Advisory.

A continuing resolution that included federal funding for the repair of the Key Bridge in Baltimore and transferring the RFK stadium site to the city of Washington collapsed under pressure.

With investors now anticipating Wednesday's expected rate cut may be the last one for a while, "an overall bullish paradigm has been seriously weakened," noted Matt Fabian, a partner at Municipal Market Analytics, Inc.

Concerns are rising as the Congressional Budget Office has issued a report laying out the benefits of eliminating tax-exempt qualified private activity bonds.

The continuing resolution through mid-March is expected to include $$90 billion in disaster funding.