Market News Commentary - From The Desk of David Loesch 02.27.2020

• Fund flows continue to be strong, with overall MUNI's at all-time lows on yields, and it is hard to "swallow" where these prices are now; however, retail is looking at this as "what are my options?"  Many buyers are very skittish about the equity markets, along with the global impact of various items such as Coronavirus, elections and the overall rates of foreign countries, MUNI's and corps look very good currently.
• Mnuchin indicated that he sees no need to boost the coordination between the government and the FED, rebuffing investors who have called for more cooperation as the Central Bank runs out of tools to counter the next recession.  With rates so low, many believe there isn’t room to “correct” should something unforeseeable happen.  MUNI’s seem like they are moving to a 1.00% YTC at this point.
• 10T down in yield again today (2/25), trading around 1.375%.  I believe we will continue to move in this range for the next few days. I also think that the coronavirus news is getting a bit out of hand from a news standpoint.  With global supply chain interruptions, the virus, and the China Trade War, pressures mount for consumers in both the US and China. Twenty percent of our supplies will be impacted, creating weak earnings for many retailers.  Consumers are concerned, focusing on "staying home" instead of going out and spending their "discretionary dollars." 
• Some BD's suggest that the T markets are being fully valued for potentially poor economic outcomes.  If virus contagion fears were to ease during the months ahead, that would suggest the 10T yields are ~20bbps below fair value.  I tend to agree; however, the markets are not trading on any type of fundamentals right now (Earnings) purely on the news.  I do not foresee us moving back to 1.80% anytime soon (3 weeks)
• Everyone is wondering when China will return to work.  I believe that the industrial shutdown from the Coronavirus is looking more like a natural disaster than anything else. Many think that it will continue to get worse as well.
• The global credit machine has come to a halt due to Coronavirus fears.  This 2.6Trillion market where the world's biggest companies raise money to finance themselves has come to a virtual standstill across the globe.  This standstill will continue to put pressure on companies from a funding standpoint and could become much worse over time.  From a MUNI standpoint, this will push our pricing up, and the question is, how much lower will yields go?
• Mortgage rates are at historic lows. If your mortgage is > 4.25%, I would consider refinancing into these rates currently.  I think overall rates continue to go lower; however, this will "spur" borrowing and perhaps lead down the road we saw in 2009.
• Visible supply increased to 18.1B a new high for the year thus far.  With new issues coming out in full force now, the rate environment is ripe for refinancing.  Major deals, like most of the tobacco bonds, are being refinanced, the most significant being Ohio, which will have a lower rating than what we typically buy. Nevertheless, you will see a surge of issues coming out over the next 20 days.

David Loesch

dloesch@drlgroup.net

www.drlgroup.net

605-B Park Grove

Katy, TX 77450

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