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Market News Commentary - From The Desk of David Loesch 10.24.2019Submitted by Tax Free Municipal Bonds/Fixed Income Specialists/DRL Group on October 24th, 2019
- NY State Thruway issued last Friday 3.00% due in 2053; this was the most actively traded bond that day with trades totaling 92.2B. I would expect that funds are buying this product.
- Trump indicated that he hopes a trade deal will happen before the Asia Pacific Economic Co-op meeting takes place in mid-November. I think this is an aggressive timeline, and do not expect this to happen. Exports in Japan and South Korea continue to extend their declines and will most likely continue to show weakness.
- The MUNI market has seen the busiest October since a surge in debt sales ahead of the 2016 election. Issuers have sold over 33B of long-term debt this month alone, and there is 14B scheduled this week. Many retail investors have decided to lock in rates here to avoid or at least slow down the calls.
- With the China optimism, T bills are steady, both sides seem optimistic about the trade talks and trying to reach a settlement. As discussed, this will continue to be the "news of the day," particularly once we get past earnings season. Overall, with a significant issuance coming out, China trade talks that seem to be moving along well, and perhaps profit-taking, I can see the 10T get to a 1.80% quickly; however I think we will continue to trade in the range of <1.85 and >1.50 for quite some time.
- CITI indicated that they are turning more bearish on Chicago debt due to the financial risks posed by the ongoing teachers strike. They are concerned that the region's credit will get downgraded due to this strike and the lack of budgeting controls in place.
- With the miss of CAT this week, many believe that the US is in the driver’s seat with China; in fact, I do not see that as the case. China sells too many goods to the US to not have the upper hand.
- Chicago Mayor is pitching an 11.7B budget for 2020 that taps a real estate transfer tax and vehicle congestion similar to NY. This budget includes 352MM of new revenue and will be using the additional tax revenue to finance the 838MM bond issue mentioned. Overall this is a well thought out budget; however, S&P indicated that it would continue to look to the city for a downgrade if the situation does not improve or if EOY can not pass a budget.
- The Credit rating agencies indicated that IL is facing sizable deficits in the state’s general fund 2020-2025 and indicated that a downgrade might be in order.
- Voters in Texas will be asked to decide on a 9.2B bond issue, which is a 12% jump from the year previous. Overall, Texas' economy continues to outperform many states, and you will see many refinancing's through 2020.
This content is based on the opinions of David Loesch based on his review of articles from Bloomberg.com or CNBC.com.
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