Broker Check

Market News Commentary - From The Desk of David Loesch 01.28.2021

January 28, 2021
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  • The FOMC indicated no change in policy on 1/27/21 and only slight changes to the economy's overall outlook and growth. They are concerned about "pockets of weakness" and commented that the economy's slowdown was much more "broad-based" than most realized. The FED indicated that rates would remain the same for quite some time and most likely taking us out to 2022. Some think that rates could even move down before up. I would look for the 10T to trade +/- 20 bps from here for the next 30 days.
  • Chicago BOE’s will be offering a 560MM issue today with a yield of 2.61% out long. Since the Teacher’s Union has encouraged teachers to strike, I find it interesting that a bond is coming out at this time (uninsured), yielding a 2.61% during a district-wide strike. It will be interesting to see how our markets absorb this issue, I suspect the demand will be strong as everyone is “reaching” for yield
  • Many analytical groups on Wall Street expect the FED to hold both rates and the pace of asset purchases steady for all of 2021. This fact will continue to keep yields low and improve the economic prospects due to the financial aid being discussed in Congress now. I suspect that with Yellen and Powell, both Treasury and the FED will take a "more dovish" approach to the economy. The FED will continue to stress limited upside risk to inflation by placing a greater emphasis on weak demand in our economy.
  • The US Supreme Court sought the Biden administration's views on a state against state clash over billions of dollars paid in income taxes by people who worked from home during COVID 19. For example, New Hampshire is challenging Massachusetts’s practice of taxing non-residences who previously worked in the state; however, they are now doing their jobs from home like many others out of the state. This case will be important to watch as it could set a precedent and change tax laws in the future, impacting many taxable states' revenue should this become the norm. We will be watching this closely as this could affect "taxable heavy states," which might prompt downgrades.
  • President Biden indicated he is open to reshaping his $1.9T stimulus proposal as the administration seeks a bipartisan deal. Many believe that $1.9T is too big and will continue to pressure our economy with a huge debt burden. However, Biden has indicated that no matter what happens with the number, the state and local governments will get the assistance they need to continue to operate. This fact will be good news for MUNI's in the long run and the insurance companies.
  • The consensus is that additional funds will flow into the mass transit arena, such as MTA. This flow will include a $12B to build a new rail tunnel linking NY and NJ through the Hudson. Many in Congress have already indicated that a "good chunk" of this money will go directly to MTA. I believe that the government will shuffle funds to these projects to assist where needed.
  • Visible supply begins the week at $8.26B and continues to be well below the average of $13.9B for 2020. Many, including me, expect this number to remain low over the next two months as many municipalities issued debt in the early Fall of last year to "get ahead" of the election, as discussed. With this "lack of supply," I believe it will continue to prop up MUNI prices for the near term.
  • As we know, American states and cities are selling bonds to cover their pension fund debits at the fastest pace in more than a decade. With interest rates holding at record lows, I expect this to continue through 2021 and most, if not all, 2022. With the current administration's stance on borrowing while funding municipalities and cities for "whatever they might need," many in our markets believe that most pensions will shore-up with additional debt.

David Loesch

dloesch@drlgroup.net

www.drlgroup.net

605-B Park Grove

Katy, TX 77450

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