- 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 04.02.2020Submitted by Tax Free Municipal Bonds/Fixed Income Specialists/DRL Group on April 2nd, 2020
- As we know, the record selling from funds forced a considerable downturn in pricing in MUNI bonds over the last four weeks. We started to see a recovery last week after the 2.1 trillion stimulus package, however on Wednesday, yields surged again, and IDC was marked down ~55bbps. This jump comes after individuals pulled another record amount from MUNI funds in the last two weeks. These outflows continue to put pressure on the bid side of the market. Some funds need to sell assets to cover both the redemptions and the capital calls. High yield bonds have been hit hard during this selloff, losing 11% through the end of March despite last week’s rebound.
- Many BD's have indicated the volatility is making it challenging to price new deals. Many are not interested in buying anything from underwriters at this time. The trend seemed to be turning last week. However, it seems based on yesterday's comments from larger dealers; everyone is focused on the secondary bid side of the markets.
- MTA plans to sell 800MM of bonds to help pay down 1b of debt maturing 5/15. I will be interested to see how this “pay down and issuance” happens under the current market conditions.
- Numbers are coming in from cities such as NY about economic losses from this virus. NY is projected to lose 10-15B of revenue in the fiscal year that started yesterday. Ohio has cut spending by 20%, and Cincinnati is furloughing 1700 city workers over the next two days. As we all know, states and cities rely on revenue from taxes, income, and sale of goods; with the decline in these numbers, I expect a wave of selling in all asset classes over the next few weeks. MTA has asked for assistance from the government so it can keep paying bondholders as ridership plummets because of the virus. MTA is one of the largest borrowers in the MUNI markets. Pat Foye (head of the agency) indicated yesterday they had enough funds to make debt services; however they will need additional funds to continue operations.
- San Francisco is forecasting it may lose as much was 1.26B of tax revenue over the next two years because of the sever shutdown imposed by the government.
- US hospitals continue to burn through cash quickly. The 2.2T package allows hospitals to get an advance on expected Medicare reimbursement rates to make up for lost revenue. However, I would be concerned about ongoing operations. Many companies, such as hospitals, are taking on more and more debt, and their overall balance sheets will be much more substantial, creating a lower earnings landscape. I do not think the market has their “arms around this” yet.
- The ADP Research Institute’s jobs report for March will show the initial impact of virus disruptions. Jobs' numbers are expected be very low this month and most likely through May. I am concerned that we will see another (although smaller) selloff as we move through the spring.
- Here is a good explanation of what happened regarding unwinding trades and leverage. Nuveen's 19.5B high yield MUNI bond fund unraveled 410MM of tender option bond trusts in the last two weeks. As those funds began to liquidate tender-options, bond trusts holding 2.5B worth of MUNI’s, set off the markets steepest slide in at least four decades. The trusts issued floating-rate notes to money market funds and used the cash to buy higher-yielding long term bonds. Funds seek to poke the difference in yield between the two. This strategy backfired because yields on short term debt skyrocketed as investors pulled cash out of money market funds and banks struggled to reset the notes. Due to the depression of pricing for MUNI's and the higher rates on the margin, the banks "called the loans," resulting in massive selling of high-quality munis over the last three weeks. Many funds (including most Nuveen's funds) plunged 20% in the previous 3 weeks. Therefore, we do not recommend funds to our clients.
605-B Park Grove
Katy, TX 77450
This report has no regard to the specific investment objectives, financial situation, or needs of any specific 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 to be construed as a solicitation or an offer to buy or sell any 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 specific categories of investors. 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 bonds that are non-rated (NR) 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. Do not use email to send us confidential information such as credit card numbers, change of address, PIN numbers, 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.