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Market News Commentary - From The Desk of David Loesch 03.04.2021Submitted by Tax Free Municipal Bonds/Fixed Income Specialists/DRL Group on March 4th, 2021
- US Treasuries moved up in yields yesterday, driving long maturities to their highest levels this week, pushing up inflation expectations. Market Proxy for anticipated annual inflation rate exceeds 2.5% for the next five years for the first time since 2008. At least part of the trigger for the fixed income losses came from the UK, which said it would sell more bonds than expected coming up from a deep recession.
- NYC stands to receive $5.6B as part of President Biden's plan. The city lost 570,000 jobs last year. I think we will continue to see a significant NY paper flow as we move through the year.
- Bloomberg analysis shows that the muni market is at the lowest price in almost a year and still below historical averages. It seems as if the pandemic never happened for the muni market. Assuming there are no changes in demand for muni bonds, the market would need around $440billion of supply to meet the current demand for 2021. This fact shows a strong market for us; even with the recent yield changes in the last two weeks, trading has not slowed down.
- PR introduced a bill on Tuesday that could eventually lead the island to become the 51st US state. This bill would have no impact on the island’s bankruptcy. It will be interesting to see how this plays out. I think we will continue to see PR paper moving up in price as we have in the last few weeks.
- Muni bonds are looking to recover from the two-week sell-off when the 10-year T topped 1.60%. Despite that, muni bonds are still in high demand. Dealer's inventories have been declining steadily since last year, but we expect some increase in the next several weeks with the new movement on yields. Higher yields have made it more attractive for tax-free bonds.
- New Issues for muni bonds have not slowed down; the deals keep coming even at these new levels.
- Brazos Electric Power Cooperative filed for bankruptcy this week, with an estimated $2.1B in charges over the seven-day freeze that hit Texas. As a comparison, it cost $774M to power all of 2020. Texas Power Utilities bonds were placed on credit watch by Fitch Rating Service this week as well.
- Rayburn Country Electric Cooperative had its rating cut to CC from A- by S&P, with a default chance. I think we will continue to see this trend with Texas power companies after the storm a few weeks ago. It will be interesting to see how the bills from the storm play out in the next few months.
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