Broker Check

Market News Commentary - From The Desk of David Loesch 01.07.2021

January 07, 2021

  • With the Ga Senate race over & a Democratic win, President-elect Biden can push for another stimulus bill extending assistance to cities and states to help fight against shutdowns. With this backstop in place, it allows primary dealers to issue paper for those in need. I suspect that if there is another bill passed, it will give money directly to local municipalities.
  • Moody’s indicated yesterday that aid of about $80-$100B could cover their forecast for the shortfall facing states and local governments through mid-2022. Moody's stated that these deficits declined thanks to the previous bills, which gave $82B in support to schools and universities.
  • In January, $20.6B MUNI bonds will mature, and another $4.8B called. This $25.4B will seek a new home and most likely will find its way back to the MUNI market as bond buyers typically do not take out principal. Also, January - March are generally low underwriting months, and with the race to market at year-end 2020, new issues this year may now be fewer. Many dealers expect this dynamic to continue through the 1st Q of 2021, with $67B maturing and $21B called, thus creating enormous cash in the market.
  • Texas, sales tax collections totaled $2.9B in December, 5% less than 2019. Most robust gains were coming from online general merchandisers; overall, TX and a few other states such as OK, CO, and WY led the nation with stronger than expected collections.
  • The pandemic has driven MUNI Bond Insurance's use to its highest level in more than a decade. More than $34B state and local bonds sold in 2020 were insured; however, this only accounts for 7.5% of the new issues. This uptick indicates many buyers and issuers will want insurance as we move through this year. Assured Guaranty insured about $19B, and BAM did another $15B of new issuance in 2020. Both companies indicate that they should be on track to do the same numbers again for 2021.
  • I believe that bond insurance gave the investor more confidence in March and April of 2020; with the fallout of pricing, many buyers, including our clients, were seeking paper to buy due to the product's insured nature. However, very few if any large AA-rated municipalities who were uninsured filed bankruptcy; this goes back to MUNI's overall safety, which is why high net worth clients like this asset class.
  • The MUNI markets had a great year in 2020. State and local governments issued about $457B in long-term bonds, 12.5% more than what was sold in 2019. Due to a sharp rise in taxable paper totaling $140B, this increase was more than double the previous record set in 2016.

David Loesch

605-B Park Grove

Katy, TX 77450

(866) 664-4040 (toll-free)

(281) 398-8600 (direct)

(281) 398-8607 fax

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