CHICAGO: Investors pulled another $2 billion from US municipal bond funds in the latest week, underscoring fears that potential sweeping tax changes under President-elect Donald Trump and a Republican Congress will undermine the tax-exempt debt market.
Trump’s plans to cut taxes and increase fiscal spending have already boosted inflation expectations. As a result fixed-income markets, already weighed down by forecasts for tighter US monetary policy, have see prices slump while stocks have reached record highs.
Since the Nov. 8 election, munis suffered more than any other fixed-income sector with a negative total return of 3.229 percent, according to Bank of America Merrill Lynch indices.
Trump wants to reduce the current seven tax brackets to three: 12 percent, 25 percent and 33 percent. This mirrors a June tax proposal by US House Republicans but the House proposal would also allow taxpayers to deduct 50 percent of their capital gains, dividends and interest income, shrinking overall taxes even further.
“It just seems that municipals would have to readjust in terms of yield, a little bit higher yield, to bring itself back into parity proportionately with other asset classes to remain competitive,” said Jim Colby, chief municipal strategist at VanEck.
Tax-exempt bonds, which outperformed other fixed-income assets in 2015, are on track to have the only negative return, albeit a small one, for all of 2016.
As of last Wednesday, munis returned a negative 0.078 percent versus positive returns of 0.551 percent for Treasuries and 5.158 percent for corporate bonds, BAML reported.
The corporate tax rate, as envisioned by Trump, would fall to 15 percent from 35 percent, making muni bonds less attractive for tax-exempt debt buyers like banks and property and casualty insurance companies.
Wealthy investors subject to federal income tax rates currently as high as 39.6 percent are traditional buyers of tax-free bonds sold by states, cities, schools, nonprofits and other issuers.
Investors are fleeing from muni bond funds. The net outflows have grown for six straight weeks to $13.5 billion since the US election, according to Thomson Reuters Lipper service.
The muni market is $3.7 trillion overall and until recently was the beneficiary of 54 straight weeks of fund net inflows.
Do tax rates matters to munis?
While there is talk of a tax reform bill moving through the House relatively quickly, past history indicates a vote by the August recess, setting up a Senate vote in the fall and potential signing by Trump before year-end. If progress stalls, tax reform could lay dormant during 2018’s election year.
Some question the tax impact on the municipal bond market though.
Philip Fischer, municipal research strategist at BAML, said tax rates are no longer the driving force behind muni purchases and that tax-sheltered investment vehicles have replaced competition from other fixed-income assets.
“What is going on is that munis have to yield enough so they are competitive with other tax sheltered instruments like 401k’s,” he said.
The tax-exempt market should have some time to adjust before the first major US tax changes materialize since 1986’s massive reform law.
“We really believe if it really does happen it is more of a 2018 event not a 2017,” said Dan Heckman, national investment consultant at US Bank.
Meanwhile, muni issuers are facing higher borrowing costs than just six months ago. A rise in yields on Municipal Market Data’s benchmark triple-A scale from record lows reached this summer accelerated after the election.
The yield on top-rated 30-year bonds ended Friday at 3.11 percent, which is 118 basis points up from its 1.93 percent low. For 10-year bonds, Friday’s 2.39 percent yield was 110 basis points over the all-time low of 1.29 percent.
Issuers took advantage of historic low rates to refund old debt and sell new bonds, pushing 2016 issuance to $423.5 billion as of Friday, just short of 2010’s record $430.35 billion supply, according to Thomson Reuters data.
“We could envision a market totaling $350 billion (in 2017), about $100 billion less than this year, but this of course depends heavily on how the proposals play out,” Natalie Cohen, a senior analyst at Wells Fargo, said in a December report on potential tax changes.
Refundings of existing bonds, which accounted for about 61 percent of 2016 issuance, would not screech to a halt given the impending 10-year call on hefty amounts of debt issued in 2007, she added.
Tax-exempt bonds already pinched by proposed Trump tax cuts
Tax-exempt bonds already pinched by proposed Trump tax cuts
Saudi Arabia sets global benchmark in AI modernization
- Executives hail the Kingdom’s robust infrastructure and strategic workforce programs
RIYADH: Saudi Arabia is emerging as a global leader in artificial intelligence, according to executives from OpenText, one of the world’s largest enterprise information management companies.
With 22 years of international AI experience, Harald Adams, OpenText’s senior vice president of sales for international markets, said the Kingdom’s modernization efforts are now setting a global standard.
“From my perspective, Saudi Arabia is not only leading the modernization towards artificial intelligence in the Middle East, I think it is even not leading it only in the MENA region. I think it is leading it globally,” Adams told Arab News.
In an interview, Adams and George Schembri, vice president and general manager for the Middle East at OpenText, discussed the Kingdom’s significant investments in AI during the inauguration of OpenText’s new regional headquarters in Riyadh.
“So for us (OpenText), from our perspective, it was a strategic decision to move our MENA headquarters to Saudi Arabia because we believe that we will see here a lot of innovation coming out of the country, we can replicate not only to the MENA region, maybe even further to the global level,” Adams said.
The new headquarters, located in the King Abdullah Financial District, will serve as a central hub for OpenText customers and partners across the Middle East. Its opening reflects a broader trend of tech giants relocating to Riyadh, signaling the Kingdom’s rise as a hub for global AI innovation.
Adams attributed Saudi Arabia’s lead in AI modernization to a combination of substantial financial backing, a unified national strategy, and a remarkable pace of execution.
“I mean, a couple of things, because the ingredients in Saudi Arabia are of course, quite interesting. On the one hand side, Saudi Arabia has deep pockets and great ambitions. And they are, I mean, and they are executing fast, yeah,” he said.
“So from that perspective, at the moment, what we see is that there are, especially on the government side, I can’t see any other government organizations globally moving faster into that direction than it is happening in Saudi Arabia. Not in the region, not even on a global level, they are leading the game,” he underlined.
Schembri added, “Saudi’s AI vision is one of the most ambitious in the world, and AI on a national scale is not good without trusted, secured, and governed, and this is where OpenText helps to enable the Saudi organizations to be able to deliver on the 2030 Vision.”
“The Kingdom’s focus on AI and digital transformation creates a powerful opportunity for organizations to unlock value from their information,” Schembri stated.
“With OpenText on the ground in Riyadh, our customers gain direct access to trusted global expertise combined with local insight — enabling them to manage information securely, scale AI with confidence, and compete on a global stage,” he added.
DID YOU KNOW?
• Saudi Arabia ranks 5th globally and 1st in the region for AI growth under the 2025 Global AI Index.
• The Kingdom is also 3rd globally in advanced AI model development, trailing only the US and China.
• AI is projected to contribute $235.2 billion — or 12.4 percent — to Saudi Arabia’s GDP by 2030.
The inauguration of OpenText’s new regional headquarters was attended by Canada’s Minister of International Trade and Economic Development, Maninder Sidhu, and Jean-Philippe Linteau, Canada’s ambassador to Saudi Arabia.
Sidhu emphasized the alignment of Saudi Vision 2030 with Canada’s economic and innovation goals.
“His Highness (Crown Prince Mohammed bin Salman) and Vision 2030, there is a lot of alignment with Canada, as you know, with the economic collaboration, with his vision around mining, around education, tourism, healthcare, you look at AI and tech, there’s a lot of alignment here at OpenText Grand opening their regional headquarters,” Sidhu told Arab News.
Saudi Arabia’s AI ambitions are projected to contribute $235.2 billion — or 12.4 percent — to its GDP by 2030, according to PwC. The Saudi Data and AI Authority, established by a royal decree in 2019, drives the Kingdom’s national data and AI strategy.
One flagship initiative, Humain, chaired by Crown Prince Mohammed bin Salman, was launched in May 2025 under the Public Investment Fund. It aims to build a full AI stack — from data centers and cloud infrastructure to models and applications — positioning Saudi Arabia as a globally competitive AI hub. The project plans to establish a data center capacity of 1.8 GW by 2030 and 100 GW of AI compute capacity by 2026.
Saudi Arabia is also expanding international partnerships. In May 2025, Humain signed a $5 billion agreement with Amazon Web Services to accelerate AI adoption domestically and globally, focusing on infrastructure, services, and talent development.
The Kingdom ranked fifth globally and first in the Arab region for AI sector growth under the 2025 Global AI Index, and third worldwide in advanced AI model development, behind only the US and China, according to the Stanford University AI Index 2025.
Education is another pillar of Saudi AI strategy. Starting in the 2025-26 academic year, AI will be taught as a core subject across all public school grades, reaching roughly 6.7 million students. The curriculum will cover algorithmic thinking, data literacy, and AI ethics.
OpenText executives emphasized their commitment to supporting Vision 2030 and the national AI strategy through workforce development.
“OpenText has put a lot of investment in the Kingdom, right. We brought cloud to the Kingdom, we’ve opened our headquarters in the Kingdom, we’ve basically hiring Saudis in the Kingdom, We basically building, if you like, an ecosystem to support the Kingdom. And on top of that, what we’re doing is we’re putting a plan together, if you like, a program to look at how we can educate, if you like, the students at universities,” Schembri said.
“So this is something that we are looking into, we are basically investigating and to see how we can support the Saudi nationals when they come into the workplace. And I’m really excited. I have Harry who is, our leadership who’s supporting this program.”
“It’s something that we are putting together. It’ll take some effort. So it’s still in play because we want to make sure what we put it basically delivers on what we're trying to achieve based on the vision of Saudi,” he added.
“The younger generation is sooner or later either working for us or maybe for a partner or for maybe for a customer. So that’s why we are to 100 percent committed to enable all of that,” Adams said.
