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Market News Commentary - From The Desk of David Loesch 07.30.2020Submitted by Tax Free Municipal Bonds/Fixed Income Specialists/DRL Group on July 30th, 2020
- It goes to show you how quickly things can change in our business - a day after Republicans released the $1T plan that provided no new aid for governments to combat budget shortfalls, analysts are confident that a portion of the money will go towards states and cities. Republican lawmakers said Monday that this would not happen, however many in the street believe that it will, along with all other items we have discussed (lack of supply, taxes, and such) prices moved up slightly on Tuesday. UBS and BOA indicated they believe many states and local governments will get more money than we expect and are bullish on muni debt for the rest of the year.
- NJ Republicans are pursuing a legal challenge to stop the Governor’s plan to sell as much as $9.9B of GO’s to cover budget shortfalls. Lawmakers believe the sale will be a threat to the state's credit profile and could damage the states long term health.
- 7/23 Moody's indicated that Water and sewer bonds are the "best positioned" from a credit risk posed by the virus. Since the last recession, strong economic growth has allowed utilities to raise rates and build reserves. DEC ratios have ramped up, and the rating agencies indicated that they are well positioned with strong liquidity, even in this current environment. When bidding, we can use paper like this, both insured and uninsured, as long as it is in a strong area.
- According to Moody’s, five states have enacted temporary spending plans to briefly avoid some tough decisions (CA being one of them) as they contend with the uncertainty of the virus, betting on another package coming to assist. I believe we will see tax increases both on the state and federal levels to offset these shortfalls and this spending. As taxes rise in 2021, you will see a push towards MUNI's more so than you see today – and it will be interesting to see how the FED handles the allocations of capital for these states.
- As we have seen individuals and banks stepping up their buying in muni’s, now I see insurance companies buying. 15% of the largest insurance companies, like Met Life, have increased their allocation in the MUNI bond market, focusing on investment-grade paper only. This trend will continue to increase gradually, and I would not be surprised to see the number go to 20% by the end of the year - pushing our markets up in price.
- MTA indicated it would need $3.9B in FED Aid to make it through the year. Revenue continues to be off 83% as of last week. I believe that they will get the aid; however, I am not sure how the "payback" will be structured. August supply/demand condition for MUNI's will be stronger than July's - $53B of coupon and principal redemptions - new issues will not keep up with this demand.
605-B Park Grove
Katy, TX 77450
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