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Market News Commentary - From The Desk of David Loesch 08.06.2020Submitted by Tax Free Municipal Bonds/Fixed Income Specialists/DRL Group on August 6th, 2020
- Franklin Templeton started a fund focused on investing in "green-backed muni bonds." These are bonds that concentrate on climate sustainability and which positivity impact the environment. The fund will spend at least 80% of its net assets in MUNI green bonds from issuers.
- Benchmark State yields as of 8/4 10-year: CA .67. FL .67, IL 2.80, NY .88. PA 1.02, TX .75 - all down from the last time I reported this. Some think we go to .40 on the 10-year Treasury and perhaps lower. Yields seem like they want to go to 0.00%.
- Many Global bond markets do not think the worst of the pandemic is over. US, German and UK yields across the curve, have been edging lower over the past two months. This decline in yields sends a powerful message: much more economic pain is in the pipeline, and easier monetary policy across the G-10 is inevitable.
- Charles Schwab’s chief economists believe that NYC, along with other large cities like Houston, will bounce back from the pandemic very well. They think that employees like working remotely and will get away from cities, sell their homes and apartments, and buy something smaller/larger and cheaper. I am not sure if I buy into the notion of a permanent exodus. When SALT was in-acted many people believed that people would move out of large cities into smaller communities to save on taxes - this did not happen. Cities will rebound again, and buying bond types, such as essential services, in my opinion, is a smart buy.
- Once again, MTA is coming to the market, borrowing as part of an upcoming Bond Anticipation Note (BAN) sale. MTA is planning on selling $950MM in notes, $450MM will go to the FED Municipal Liquidity Facility depending on market conditions. I have always thought that MTA will receive funds from the FED; it is simply too crucial.
- 8/1 had $22B of debt payments payout to bondholders; this is enough to buy up all the tax-exempt securities so far set to be sold this month and still have half leftover. The tide of cash will continue through the fall - only $10.7B of bonds sales are on the scheduled for 9/2020. Overall, market technical’s have swept aside any concern about the significant financial hit facing states and cities after the virus has sent the economy into the worst downturn on record. There remains a lot of uncertainly; cash-flow is an excellent antidote for uncertainty, which is why I think bonds continue to attract investors.
- Colorado and SC have pulled back from making additional payments to their underfunded pensions. Colorado eliminated a $225MM payment to the state's retirement system backing away from a previously made promise to bolster the program. Colorado's pension program is about 60% funded. I expect you will see many states enact this plan over the next year; SC, NJ, CA, to name just a few.
- As many of you might know, I study history, the yields on state and local government bonds have steadily dwindled over the past month, even as the virus has surged in some states. The oldest gauge of MUNI yields is the Bond Buyer Index of those on 20 year GO bonds. Currently, 20-year GO’s yield around 2.09%, the lowest since 1952. The BBI 10-year benchmark slipped below .6% yesterday, the least since 2011. Also, the MMD’s measure of 30-year yields has dropped to the lowest since it began in 1982. All of this is telling you that we are (or should be) at all-time highs in our markets since Harry Truman was President. Investors are also telling you that MUNI’s remain one of the world’s safest investments, given how rare defaults are by governments that can raise taxes. I feel that yields will move down slightly; however, we have been calling for this for the last two months.
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