- As previously discussed with our clients, we are seeing a pullback in January. Muni yields rose 10bps, and the 10-year T moved to 4.25% as of this writing. The January issuance of new bond deals has been heavy and is expected to grow daily. This will pressure our market and offer opportunities for those on the sidelines.
- A substantial amount of cash has entered the market this month and will continue in February. In January, $5.70B bonds were called, and $27.2B bonds will mature in February, up from $20.6 B maturing in January. This amount is about $33B in cash returned to buyers. As a reference point, the average February volume for the past ten years has been a manageable $26B. As these funds become available, bond buyers will be replacing positions. The higher yields from heavier new issuance and all this cash looking for a home should make for an interesting month.
- For the CA buyers, the state is on the verge of a potential borrowing boom as lawmakers draft more than $100B in MUNI bond proposals. If you are a buyer of CA paper, let's discuss how this could impact credit ratings.
- NY Governor Kathy Hochul has proposed a $233B budget, which would boost the state’s borrowing power for the first time in more than a decade as inflation pushes construction costs higher. The issue impacted is the Transitional Finance Authority, which is currently highly rated; it will be interesting to see if this will impact these ratings.
- Hospitals are returning to the MUNI market for financing as they aim to pivot from survival to revival. Hospitals are tapping the Muni market for more than $1.70B to expand and upgrade facilities. This figure outpaces the $390.7MM issued by hospitals last January.
- Jefferson County, AL, came to market this past week, issuing $2.2B of Muni bonds. This county was once a bankrupt municipality. The bond deal was oversubscribed, having $26.5MMB in orders. The bonds were BBB+ rated and sold for the county's sewer system. This point tells you how hungry investors are for yield. The long bonds were priced around 4.50% when all was said and done. Considering the volume of new issues this month, this was very positive.
- CA Governor Gavin Newson has proposed deep spending cuts during the next fiscal year to deal with a $37.9B deficit left by inflation and a plunge in tax revenue from wealthy earners. This fact is something to pay attention to, as it will deplete the state’s general fund budget by more than 7% in the current fiscal year. Overall, this depletion could impact credit ratings; however, it is too early to tell. One of their most significant issues is the current tax system; the state must make it more hospitable for residents and businesses to operate.
At The DRL Group, we specialize in helping high-net-worth investors maximize tax-free returns by proactively maintaining their custom bond portfolios through all market conditions.
We would love the opportunity to visit with you further. Please click here to schedule a call with one of our specialists or contact us at 281-398-8600.
605-B Park Grove
Katy, TX 77450
New Edge Securities, Inc. has no affiliation with Bond Desk Trading LLC, Bond Trader Pro, Tradeweb Direct, Bondpoint, TMC, or any other ECN. Yield to call (YTC) does not indicate total return; this yield is valid only if the security is called. Bonds may or may not be called or be callable on multiple dates or, in other cases, called on any date following the first call date, so yield to call is based on the earliest stated call date. Discounted bonds may be subject to capital gains tax. Bonds may be subject to OID (Original Issue Discount). Prices and availability may change at any time without notice. Do not buy discount bonds based on the Yield to Call (YTC). Insured bonds are issued for timely payment of principal and interest only. Insured bonds do not cover potential market loss and are subject to the insurance company's claims-paying ability. Non-rated (NR), Withdrawn (WR), or below investment grade bonds, lower-rated bonds carry a greater potential risk of default & should be considered by sophisticated investors only. Bonds may be subject to capital gains tax. This summary is for informational purposes only and is not an offer or solicitation for the purchase or sale of any security or a recommendation or endorsement of any security or issuer. New Edge Securities, Inc. and DRL Group make no representation about the accuracy, completeness, or timeliness of this information. Bonds could also be subject to the DeMinimis Rule; please consult your tax advisor for further clarification.
As with any investment, the market value may vary during the period the investment is held. Subject to prior sale and market conditions. This offering is in limited quantity. Please take advantage of them before they are gone.
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Bonds are subject to market and interest rate risk if sold before maturity. Prices and availability may change at any time without notice. Insured bonds are subject to the claims-paying ability of the insurance company.
Bonds could also be subject to the De Minimis Rule; please consult your tax advisor for further clarification.
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