Market News Commentary - From The Desk of David Loesch 11/07/2019Submitted by Tax Free Municipal Bonds/Fixed Income Specialists/DRL Group on November 7th, 2019
- Wall Street is not excited about the tax- the- rich push, which is front and center in the Democrats' efforts to unseat Trump. If this happens, the value of Tax-Exempt bonds will move up based on the income tax treatment. MUNI's delivered outsized returns during the Clinton years when the top rate marginal tax rate was higher than where it is now. Even though they are saying that Warren cannot win, I am cautioning our retail about this, as no one thought Obama or Trump could win either.
- Spreads on MUNI’s continue to tighten, and several articles a day come out about retail and institutional accounts chasing yield in this market. With yields still low, many investors are turning to the taxable MUNI markets to enhance their return. The wider spreads are due to a surge of taxable debt sales by states and municipalities in the second half of this year as rates have tumbled.
- State and Local governments sold 55B in long term debt last month, the most since 12/2017, when issuers brought 59B to the marketplace. The deluge came as governments took full advantage of falling interest rates by selling taxable MUNI's to refinance higher-yielding tax-exempt debt. Twenty-eight percent of the new issues were taxable.
- Our markets are pulling back based on the news coming out of the White House on the China tariffs while the equity market favors this news.
- Visible supply continues to rise, with the low rates, municipalities are pushing to get deals done before the end of the year. Right now, issuances sit at 24B, a new high for 2019, and the highest it has been since the 25.7B in 12/17 when the markets were issuing paper ahead of the tax law changes.
- US Financial regulators led by Mnuchin and Powell are on notice about the risk of an economically damaging cash crunch in the 11T home mortgage markets. Many believe there is a weakness in this market, which could cause a liquidity crisis in the near future. I find this interesting because this is how the 2008 issues started, being "put on notice" of an impending problem.
- As I mentioned in a past note, the housing shortage is causing affordable housing to move up in price for the first-time homeowner. Many cities are in this crunch, such as Austin, LA, NYC, Seattle, and Miami. Granted, these are relatively large cities, but large companies are moving to these cities (except for NYC) and causing issues with pricing. S&P indicated this morning they are putting many cities on credit watch with negative implications as this happens.
- Markets are down this morning based on China agreeing with the US to cancel existing trade tariffs in phases. As indicated, the market is trading mostly on this news. A critical condition for a limited trade agreement is that the US and China must each remove the same amount of charges in tandem. Trump has not commented on this yet, but I’m sure he will.
- Chicago has settled its teacher's strike and has indicated that the results are "manageable" through fiscal 2020. The credit rating companies have not put the city on any further watches at this time.
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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