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Market News Commentary - From The Desk of David Loesch 10.01.2020Submitted by Tax Free Municipal Bonds/Fixed Income Specialists/DRL Group on October 1st, 2020
- House leaders postponed a vote on a Democrat only stimulus bill to give Mnuchin and Pelosi one more day to negotiate a compromise on a 4th relief package. Pelosi met for about 90 minutes Wednesday without striking a deal. Both sides said they made progress and planned to continue the discussions. I do not foresee a $2.2B deal getting done; however, a compromise could be in order as Trump indicated that he would support a $1.5B deal. Again, this will not move our markets per se,' but I do think it is critical to get his done for further improvements to our economy.
- Overall, state tax collections are expected to drop by 11% by the end of the fiscal year 2021, with declines concentrated in the pandemic’s hardest-hit states. According to Moody's, tax revenue declines will be concentrated in CA, IL, TX, and NY.
- Visible supply climbed to $18.9B, the highest since the $27.2B posted on 3/27; well above the 2020 average of $13.957B. Bonds will continue to be called through the last Q of 2020 based on these numbers.
- Over this past weekend, Goldman Sachs indicated to take a bullish approach on MUNI's and go slightly further out on the curve in the 10 to 15 year space. Their reasoning is, you are not earning much to hold muni's inside five years.
- On Friday, Chicago indicated that it does not expect to tap the nearly $900MM in its reserves to close the roughly $2B budget hole that spans this year and next. With the market ripe for refinancing and new issuance, I suspect Chicago, along with many other cities, will raise their debt limitations and issue bonds in the primary markets in the last quarter of 2020.
- Economists estimate that another modest payroll gain in September will leave the level of employment well below the pre-crisis peak. I suspect that further declines in the unemployment rate may slow in the coming months due to increased participation from Americans trying to find work following the expiration of benefits.
- Demand for green bonds shows investors are willing to pay to put money to work on projects that conform to environmental, social, and governmental guidelines. As we discussed several weeks ago, this is a growing area in the MUNI markets and should continue to have demand for many more years.
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