- We reported that certain reports will be delayed due to the government shutdown. The January employment report has been rescheduled for 2/11 according to the data put out by Labor Stats. The data was originally due 2/6; this should not impact the markets, unless the numbers are significantly different from expectations.
- If you are buying New Orleans paper, the city had its credit rating cut two notches by Moodys as weak finances and dwindling reserves push the city closer to Junk status. We expect this to remain a challenging situation, as the city’s reserves lag those of its peers. We do expect this to continue, and we would advise caution going forward.
- We have been reporting on poorly rated Charter Schools. The number of Charter school defaults surged over the past year, marking this the third straight year of mounting distress for the sector in the absence of federal aid and enrollment headwinds. There were 107 Chater schools with impairments as of January 21, up from the 78 at the end of January last year, according to a report by MMA. If you are buying this credit, we suggest a conversation regarding whether the bonds are insured and by whom.
- The new FED Chair will have sweeping implications for the markets, especially MUNIs. The dichotomy between continued policy accommodation and potential push for balance sheet reduction has reignited debate over the yield curve trajectory. We suggest that investors seeking shorter-term paper consider the new FED chair’s views. Warsh has not indicated he will “lower rates right now,” but the thought is we will see 2-3 cuts in 2026.
- We have reported on MTA several times in the past regarding the bonds. MTA is now creating a new unit to steer a 12B effort to replace decades-old trains and modernize its bus fleet. The group, which will include about 10 staff members, will focus on performance-based specifications for manufacturers rather than being overly prescriptive on design. It will be interesting to see how they finance this; many, including us, expect MUNIs to be issued tied to the congestion tax or a variation of it.
- As reported, we will not see the jobs report this Friday due to the partial government shutdown. The release will be rescheduled upon the resumption of government funding, and all data collection has stopped during this time. This should not move the markets too much, and quite frankly, this seems to be becoming the “norm” over the past several months. We do not see this funding lapse to drag on with the Federal Government.
- US manufacturing activity unexpectedly expanded in January at the fastest pace since 2022. New orders from production companies energized the growth; these numbers surprised many and pushed yields up slightly over the last week. All figures that were released topped expectations. We feel this is one reason why yields have been somewhat steady despite a new FED chair pick.
- With the nomination of Warsh, some items he has pushed for in the past has been a reduced balance sheet and greater policy focus on inflation stability, earning him a hawkish reputation historically. At the same time, however, he has indicated he supports lower borrowing costs; all of this will create a higher volatility backdrop across most assets, in our opinion. We, along with others, believe a smaller balance sheet at the FED has the potential to increase the term premium, which would boost discount rates.
- Should discount rates be reduced, this will crimp the value of future cash flows, which could in turn compress equity multiples. It will be intriguing to see how Warsh will “take on” rates, inflation, and interpret how the overall economy is doing once he takes the helm in May.
- To carry on with Warsh, he has called for lower rates over the past several months, and has favored lowering the FED’s benchmark rate, arguing that stronger economic growth is linked to a productivity boom that will not be inflationary. He has also mentioned that AI is “profoundly” changing the speed of innovation, allowing the US to grow at a faster pace than most advanced economies. Warsh is an interesting pick; however, I suspect we will see a more dovish tone as we near May.
Securities offered through NewEdge Securities, LLC, member FINRA and SIPC. The DRL Group is not a subsidiary or control affiliate of NewEdge Securities, LLC. NewEdge Securities, LLC. has no affiliation to BondDesk Trading LLC or BondTrader Pro, or Tradeweb Direct, Bondpoint, TMC, Market Axess or any ECN.
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.
Do not buy bonds based on the Yield to Call (YTC). Insured bonds are issued for timely payment of principal and interest only. Insured bonds do not cover potential market loss and are subject to the claims paying ability of the insurance company.
Non-rated (NR), With-Drawn (WR), or below investment grade bonds, lower rated bonds, carry a greater potential risk of default & should be considered by sophisticated investors only.
This document is for informational purposes only and does not replace or serve as a substitute for your official monthly statement generated by NFS. Please refer to your official statement for accurate and comprehensive account details.
Bonds may be subject to capital gains tax. This summary is for informational purposes only and is not an offer or solicitation for the purchase or sale of any security or a recommendation or endorsement of any security or issuer. NewEdge Securities, LLC. and DRL Group make no representation about the accuracy, completeness, or timeliness of this information. Bonds could also be subject to the DeMinimis Rule, please consult with your tax advisor for further clarification.
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