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Market News Commentary - From The Desk of David Loesch 02.25.2021Submitted by Tax Free Municipal Bonds/Fixed Income Specialists/DRL Group on February 25th, 2021
- The primary MUNI market extended its selloff for two weeks after yesterday, sending yields on the benchmark 10-year securities up by 7bps. I continue to feel that we will see a 1.50% on the 10T, and our markets will move up another 10bps over the near future. These new levels are attractive to many.
- PR struck a deal with bondholders to slash the Central Government's debt, a critical step to moving forward. The new agreement considers the pandemic's economic impact on the US Territory since the terms of the original deal were struck 2/2020. The goal is to exit bankruptcy in 2021, so they will seek court approval by Fall. The terms indicate that the GO bonds' bondholders would receive $14.4B, $7B in cash, and the rest through new securities issuance. This agreement is a significant step for the island, and barring anything unforeseen, this deal will get done.
- San Diego County Regional Transportation Commission sold $537.5MM bonds on Tuesday with a maturity date of 10/2022. This deal is the first I have seen in a long time with such a short maturity for the entire issue. It is a clear indicator that some expect rates to move back down over the next several months and in line with what many broker/dealers indicate.
- Democrats are beginning the final push for President Biden’s $1.9T deal this week while dropping any bipartisanship pretense to pass this package quickly. This roll-out will be the first “real test” of the Democrat's full control of the government and will have implications on the rest of Biden's policies. The House plans to vote as soon as Friday, and the Senate will vote next week. I suspect this will get done in some form, and you will see T bills continue to move up in yield on fears of inflation.
- Our government will pressure Federal Reserve Chairman Jerome Powell to support the above plan. He indicated now is not the time to be talking about the timeline for scaling back purchases of T bills and raising rates. Powell and his team said they do not currently have inflation fears and are more concerned with getting people back to work. Many, including The DRL Group, feel that the inflation fears are overblown at this time. With the recent rise in yields in MUNI's, we are heavy buyers; however, we also believe that the ten-year T will move to 1.50% and MUNI's have another 10-15bps to rise in yields.
- Anaheim, CA, had their bonds downgraded by Moody's as the pandemic slows tourism, a significant revenue stream for this county. Moody's indicated that the Hotel Occupancy Tax Revenues were much lower than anticipated therefore prompting the downgrade. Investors should pay attention to any HOT bonds they purchase due to these reduced revenues.
- The T yields touched the highest level in more than five years, moving past another historic level on signs of strength in the economy. The latest move pushed the gap between 5- and 30-year yields to 157.54 bps, the widest since 10/2014. As indicated, I suspect we will see T markets continue to move up in yield as we move through the spring. We believe the ten-year T will move to 1.60% and hold steady for around a month. Overall, we think yields will move back down to the 1.25% range.
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