Market News Commentary - From The Desk of David Loesch 11.21.2019Submitted by Tax Free Municipal Bonds/Fixed Income Specialists/DRL Group on November 21st, 2019
- As the presidential race heats up, Democratic Rep Cortez and Schakowsky are working on legislation that would nearly double the top individual US tax rate to 59% on the highest incomes. The bill, which is still in the drafting stages, would increase the cap gains tax. If the Democrats have any presence in our upcoming election, I would expect our markets to gain.
- 30-day visible supply begins the week at 19.2B well above the 2019 average of 11.5B. The most significant sales are the Port Authority of NY and NY Dorms.
- State and local government in the 3rd Q won the most credit upgrades from Fitch in over two years, reflecting the financial strength of borrowers in a year. I believe this trend will continue for the higher-grade paper; however, if you recall, the lower end of the rating scale has seen downgrades more so than the last five years.
- Morgan Stanley indicates that MUNI bond returns have "dimmed" heading into 2020, although they will be positive, they are predicting with the flood of new issues coming to market this could push pricing down.
- Many of the "High grade" bond funds hold more risky debt than their high yield counterparts. These funds and ETF's own 30-35% of the 320B outstanding high yield MUNI's compared to 25-30% owned by "high yielding funds." Many retail accounts have no idea what they are holding in these types of funds. While thinking that they possess "safe" securities, in fact, they do not.
- As usual, the China deal is front and center again, with T bills trading higher in price, everyone is focusing on Beijing and the US. Overall, China is pessimistic about a deal getting done while Trump has indicated that he has no intention of rolling back tariffs.
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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