- As mentioned in a previous note, we have several economic data points being released BEFORE the FED meeting this month. One of which is the Non-Farm Payrolls, Bloomberg is expecting a larger gain in August’s numbers than in July. This gain is attributed to local government hiring after a temporary freeze in hiring patterns. I would suspect this will be true; however, I do not think this will be significant – we are still betting on one cut this month.
- Regarding hiring, a phenomenon known as the “August Anomaly” has been observed over the past 30 years. The monthly payroll numbers have consistently undershot consensus, suggesting a “downside” surprise in the numbers. However, should we have higher government spending, we could see this “anomaly” reverse. We have seen President Trump put the brakes on a lot of items within our federal government, but hiring did pick up in July in that sector. 9/5 Change in NON Farm Payrolls are expected to be 75K. This will be an important number that will drive the markets.
- Treasuries did indeed nudge higher in pricing yesterday, ahead of Friday’s Jobs numbers, as traders and investors placed bets that we will see a faster pace of rate cuts by the Fed. We touched on Gold, Silver, and Crypto, all of which are hitting highs right now. It is interesting to see how the “flight to quality” and “other” assets are performing well; perhaps many anticipate a recession on the horizon, but I am not convinced of that currently.
- Investors continue to add funds to MUNI bond funds; last week, they saw a $356 million inflow, compared to the previous week’s $732 million. Overall, I would say MUNI investors continue to seek paper and will do so while yields remain at these elevated levels. I do not see yields moving down much over the next week or so. The real question is, “Is the rate cut baked into the trade at this point? I do not think so, in my opinion.
- Bostic (FED Gov) reiterated he sees one cut as appropriate for this year; however, he indicated “that could change” based on what happens in the labor markets and inflation numbers. This is another example of how many are unsure (even in the FED) of what is going to happen.
- To complement the above, Waller (FED Gov) indicated the Central Bank should begin lowering rates this month and make “multiple” cuts in the coming months. As we know, we have differences of opinion within the FED and a divided FED as well. Again, hard to read the FED with this time of news.
- US job openings fell in July to the lowest level in 10 months, which adds to the data showing employers are slowing down on their hiring. The openings did not fall due to “employers filling positions,” they are falling due to “employers removing those positions” from their stack. The FED will most likely comment on this in two weeks.
- Interesting info: MUNI bond exchange-traded funds drew more than “double” the amount of cash this year compared to traditional Mutual funds. I would not have thought this, but with the growing popularity of ETFs as an investment vehicle, this is obviously a popular allocation for investors. YTD MUNI ETFs have had $19.6B in net inflows, compared to $8B for mutual funds, according to data compiled by CreditSights Inc. The difference was particularly noticeable last month, when investors sent more than $4.5B into ETFs while net inflows for mutual funds were negative. This is a growing trend that reinforces the notion that MUNI investors are seeking paper.
- The Chicago BOE on Thursday last week approved a $10.25B budget without a controversial loan, and made a pension payment to the city contingent on additional state and local money. This caps months of tensions highlighted by its worst cash crunch in at least three years. This should be good for the bonds and for the district as well.
- The month of September historically sees lighter issuance than August, but the latter month’s supply failed to follow the 10-year average pattern. Even if the issuance slows enough to align with the September 10-year average of 39B, net supply will remain positive, spurring performance headwinds for this month. We discussed this in the last webinar, with the thought that yields should remain elevated as we move through this month.
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Yield to call (YTC) is not indicative of total return; this yield is valid only if the security is called. Bonds may or may not be called, or be callable on multiple dates or, in other cases, called any date following the first call date, so yield to call is based on the earliest stated call date. Discounted bonds may be subject to capital gains tax. Bonds may be subject to OID (Original Issue Discount). Prices and availability may change at anytime without notice.
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