- Call us at 866-664-4040
- About Us
- Trading Philosophy
- Municipal Bond Offerings
- Municipal Bond News
- Contact Us
- Client Login
Market News Commentary - From The Desk of David Loesch 04.01.2021Submitted by Tax Free Municipal Bonds/Fixed Income Specialists/DRL Group on April 1st, 2021
- President Biden spelled out his bold spending plan yesterday, indicating that a rise in corporate taxes from 21% to 28% was necessary to pay for the various COVID stimulus and infrastructure proposals. Biden intends to roll out these ideas in stages over the next eight years should he be re-elected. At this time, economists cannot make the “math work” by just increased corporate taxes. There will need to be other funding to help pay for this plan.
- The State of NY has officially repaid the $4.5B it borrowed from the Municipal Lending Program during the pandemic. This fact is a net positive for the state and specifically NY Dorms, NY MTA's, and NY trans. I suspect, however, that the state will utilize the funds from the $550B coming to pay off further debits while also improving its infrastructure without the help from the primary markets.
- T bills hit a 14-month high this week. With the vaccine rollouts and boosted spending by the FED, expectations of a broad range of inflation gripped many in the investing world. This move comes one day ahead of Biden's plan to release his economic stimulus plan of 2T of spending across many sectors of the economy. Many call this a "sugar rush" for our economy, which could lead to inflation down the road should the FED not keep rates in check. I believe you see yields move due to the anticipation of this enormous bill. Printing money seems to be the current Government's plan, and there appears to be no end in sight.
- COVID 19 spending from our Government so far has reached about $5T. Compare this amount to the roughly $830B for the recovery Act after the Great Recession of 2007 – 2009. The draw down of a massive accumulation of savings since the start of the pandemic will bolster consumption, as will the sizable wealth effect from rising real estate and equity markets. Both factors should push US output higher and sustain an above-trend growth pattern. As indicated in point one, the Government will continue to spend to drive the economy out of this "recession" from COVID until both Powell and Yellen feel that the time is right to stop. When Yellen was confirmed, I highlighted that she is a "tax and spend" politician whose objective is not to balance any budget, only to spend her way out of COVID.
- Wisconsin is one of the first states to reveal plans for the Government's capital ($3.2B). $2.5B will go towards economic recovery; out of this $50MM tourism, $600MM to support business, $200MM to support infrastructure (where Munis would typically be issued to cover this buildout), and $500MM toward state pandemic response efforts. These funds will cut down on the flow of new issues from states and local municipalities. I suspect we will start to see a draw down of new issues in the second half of this year, if not slightly sooner. More states will be coming out with "budgets" like this over the next few weeks.
- CITI cut its forecast for MUNI debt sales to $515B from $550B for this year. This change is due to the slowdown in taxable issuance due to the rise in T bills. I expect taxable advanced refunding supply will be moderate compared to last year as issuers will delay their borrowing in hopes of lower yields at year-end or 2022.
- Because mutual funds are flush with cash, Barclay's predicted that the recent sell-off in Muni's would be short-lived. Funds have more money than usual, and I suspect they are getting ready to deploy this cash when the opportunity presents itself. Barclay's, however, remains cautious that the volatility will continue, but they are not currently overly concerned about this asset class.
- Visible supply continues to deteriorate, starting the week at $7.1B, well below the 2021 average of $10.3B and 2020 average of $13.5B. Currently, municipalities are in a “wait and see” holding pattern as they stand by to see how much money comes to them from the stimulus package. They have no reason to go to market, considering over $500B will hit their coffers over the next month. With supply drying up and funds flush with cash, I expect our markets to move up slightly in price over the next 30 days.
- Last week, the City of Atlanta issued $440MM convention center bonds to build a 975-room hotel next to the exhibit hall. This deal is the first "post COVID" I've seen where the city and bondholders bet on a convention comeback. The issue came as non-insured, with yields as high as 4.22% due in 2054. $227MM of the deal was BBB- and the balance was non-rated. I suspect the bonds will do well as I firmly believe conventions and tourism will be back in 2022.
605-B Park Grove
Katy, TX 77450
This report has no regard to the specific investment objectives, financial situation, or needs of any particular recipient. This report is based on information obtained from sources believed to be reliable, but no independent verification has been made, nor is its accuracy or completeness guaranteed. This report is published solely for informational purposes and is not construed as a solicitation or an offer to buy or sell securities or related financial instruments. Opinions expressed herein are subject to change without notice and the division, group, subsidiary, or affiliate of MACC., which is under no obligation to update or keep the information current. The securities described herein may not be eligible for sale in all jurisdictions or to investors' specific categories. MACC accepts no liability for any loss or damage of any kind arising out of the use of this report. Please contact your tax advisor regarding the suitability of tax-exempt investments in your portfolio. Income from municipals may be subject to state and local taxes as well as the Alternative Minimum Tax. Corporate and Municipal securities are subject to gains/losses based on the level of interest rates, market conditions, and credit quality of the issuer. As with any security, there is an inherent market risk possibility as to principal if the security is not held to maturity. The non-rated (NR) bonds should be considered for investment by knowledgeable and sophisticated investors. Additional information will be made available upon request.
Securities are offered through Mid Atlantic Capital Corporation (MACC), a registered Broker-Dealer, Member FINRA/SIPC.
The DRL Group. is not a registered entity or a subsidiary or control affiliate of MACC.
Bonds are subject to market and interest rate risk if sold prior to maturity. Prices and availability may change at any time without notice. Insured bonds are subject to the claims-paying ability of the insurance company.
Reminder: Email sent through the Internet is not secure. Please do not use email to send us confidential information such as credit card numbers, change of address, PINs, passwords, or other important information. Do not email orders to buy or sell securities, transfer funds, or send time-sensitive instructions. We will not accept such orders or instructions. This email is not an official trade confirmation for transactions executed for your account. Your email message is not private in that it is subject to review by the firm, its officers, agents, and employees. Unless expressly stated in this email, nothing in this message should be construed as a digital or electronic signature.