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Market News Commentary - From The Desk of David Loesch 05.14.2020Submitted by Tax Free Municipal Bonds/Fixed Income Specialists/DRL Group on May 14th, 2020
- House Dem's prepared a bill that will add a 4th stimulus package focused on the MUNI and State markets. They proposed a $3T deal for just that purpose. This money would provide direct cash payments to municipalities and states along with the previous two packages, which total $1.059T. I believe this transaction will get done in some form or another and will be a significant boost to our markets. These funds would assist municipalities by keeping them from drawing on their reserves or tapping the insurance companies. This situation is a win/win for everyone but the taxpayer, which again is a win for munis.
- Economists are calling the “risk/reward” purchase of equities the “worst they have ever seen”; however, the wild card is what the FED might do. I would suggest that equities are fairly valued here with a more substantial downside risk than upside. The main issue here is what the FED will do and how they will deploy additional capital.
- Overall, states entered the pandemic in pretty good shape. The median amount of debt, funded by taxpayers, fell, as a percent of a state’s economy, to 1.90%; this is the lowest level since 2006. Costs of servicing that debt also went down because of lower rates; again, good news and stability for our markets.
- Fixed Income Dealers are calling for negative interest rates. Futures are indicating we will go negative; to me, this will be hard to imagine; however, it is a reality right now. Should this happen again, it will be positive for our markets.
- The FED is starting its program to purchase corporate bond ETF's. Most purchases will be in the junk sector through Blackrock, focusing on corporates previously downgraded due to COVID-19. This move will add much-needed liquidity to that market while providing retail the confidence needed to make decisions moving forward with fixed income securities. It will be interesting to see how this moves through the system and what impact it has on pricing.
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