Municipal Bond News

What happened with Tax Reform & how has that impacted the Muni Market?

• NJ will replenish an emergency savings account that has been empty since 2008; this furthers the evidence that SALT issue continues to "do well" for states like NJ.  I suspect that if this SALT issue continues, you will see upgrades by rating agencies based on the overall funding going into the balance sheets of the states.
• Some traders say the MUNI bond rally, w

• The prices of MUNI's are nearing record highs against T bills, and this is fueling the debate over whether they have run too far.  CITI believes that these prices are "unsustainable" and are a direct result of funds flowing into funds since the start of the year.  However, MSCO indicated that it is possible for MUNI's to rise further; still, I  believe we

• Pricing has gotten high, and retail understands the complexities behind the market, but also, they are needing bonds.  There are many private equities deals in the street now, most being multifamily apartments.  With the rates steady, these deals are getting done quickly while paying 8-12% taxable.

•             Fund Inflows have remained strong, and there have been 15 weeks of inflows, last week was 679MM as compared to 956MM the week prior.  Mutual funds will continue to buy this week, with product flow light, I believe therefore you'll see pricing strong on munis.

• Understanding what the “pledge of revenue” is from MUNI’s is the backbone of the market.  PR tried to undermine this pledge last week when it asked the courts to “strike down” the pledge that it had on its GO and revenue debt.  The courts refused to do so and as discussed last week PR paper rallied on the news.

•          PR has hired an independent 3rd party to make distributions to its bondholders after restructuring.  This is an overall good thing, and will give the bondholders confidence that the money is being overseen by someone else other than PR.  This will be a FED official who helped manage the recovery efforts.

•          The Virgin train deal (non-rated Florida deal) was 2.5x oversubscribed, the total deal size was 1.75B. Typically, anything over 1B is 1x subscribed in our markets, with this non rated deal paying up to 6.50% this shows you the demand of this type of paper out there.  

•          Bond sales hit fastest pace since December, as state and local governments are stepping up the sales, this leaves them poised to benefit from the market rally that erupted after the FED last week signaled that it does not expect to raise rates.

•          Weekly mortgage applications continue to fall.  This will have an adverse impact on the equity markets and should have a positive impact on our markets. With the slight rise in rates, application volume fell 2.50% while overall volume is 2.00% lower than last week.