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Market News Commentary - From The Desk of David Loesch 09.17.2020Submitted by Tax Free Municipal Bonds/Fixed Income Specialists/DRL Group on September 16th, 2020
- The MTA priced their new issue Tuesday night. Due in 2050, with a 4.00% coupon, the deal's final maturity was priced to yield 4.35% or 277 basis points above the benchmark index. The 2043 maturity is a 5% coupon, priced to yield 4.44%. MTA warned that it is focused on survival and will need to cut subway service by 40% unless the federal government provides $12B to cover lost revenue.
- Joe Biden is calling on the federal government to offer debt relief to Puerto Rico as part of a broader plan to support the bankrupt U.S. territory. Biden would encourage an end to the territory's fiscal austerity and increase the FED funding for recovery from hurricanes and COVID. This move would significantly help the territory; however, it will be hard to get done should he win.
- State benchmark 10-year yields: CA 1.06, FL .94, IL 3.13, NY 0.90, PA 1.19, and TX .91 - all steady to slightly down.
- I read an interesting article that the demand for American college debt has increased recently with investors from places like Japan, South Korea, Singapore, and Taiwan. Universities have priced $36B bonds this year, the most since 2004. With the uncertainties of the current year’s academic schedule, many participants are only buying national universities such as Harvard and Princeton to protect themselves against any downside.
- This week's expectations for the FOMC meeting are that they will not change anything due to rates until 2023 and give no guidance until 2021. I believe low rates will stay for quite some time; the only catalyst to change this will be the upcoming U.S. elections. A change in the White House will create volatility for all markets.
- PR’s Housing Finance Authority will try to refinance $300MM in outstanding bonds as the bankrupt U.S. commonwealth seeks to generate debt service savings. It will be interesting to see if PR gets this done amidst the credit's nature and at what rate.
- S&P and Moody’s indicated that municipal Downgrades would be rare. Even as the Americas’ states and cities brace for hundreds of billions of tax collections to disappear, the two most prominent rating companies have been and will be slow to downgrade MUNI debt. Since the pandemic, these rating companies have downgraded 1.00% of the MUNI borrowers they rate, primarily focused on lower-grade securities with very little chance of coming to the marketplace.
- Moody's has cut 125 of the approx. twelve thousand public finance entities it tracks, 90 fewer than the second and third Qtr.’s of 2018 when the economy was eight years into a record expansion. S&P lowered 175 of 20M borrowers that it tracks since late March. The most significant city downgrade was Akron, Ohio.
- I feel the lack of downgrades and the stimulus has contributed to the relative calm in the MUNI markets where investors have shaken off a steady drumbeat of negative news about the pandemic's financial impacts. As we know, pricing has rallied since March, with investors pouring billions back into MUNI’s as the FED has cut rates and indicated that they would not be acting on rates anytime soon.
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