- Powell indicated yesterday that a March cut is unlikely; however, with that said, many expect continued soft inflation data and weaker labor market data (as seen today), which will push the FED officials to gain confidence to move rates down in early summer. I suspect language will speak about a rate decrease at the March meeting. Either way cut or no cut, yields should continue to move down.
- US Job openings unexpectedly rose in December to the highest level in 3 months while fewer Americans quit their jobs, indicating workers are growing more cautious even as labor demand remains strong. I expect this trend to continue through the next few months and the Fed to comment on this topic in their next meeting.
- Yesterday, Senate Banking Committee Chair Sherrod Brown urged the FED to cut rates early this year, saying the current rates hurt small businesses and put homeownership out of reach. I do not think the FED will "take heed" of these comments. However, we are all calling for rate cuts mid-year.
- As previously discussed, CITI has exited the Muni underwriting business. BOA has picked up much of that business, having underwritten $2.2B of the $3.5B issuance for 2024. There needs to be some clarity amongst investors regarding this change. CITI is not exiting the Muni bond business; it is just exiting the underwriting portion.
- In step with the overall economy, a gauge of TX factory activity slumped at the start of the year to the second lowest level since shortly after the pandemic. The Federal Reserve Bank of Dallas said its general business activity index slid 17 points in January to minus 27.4, indicating a sharp production and capacity utilization slowdown.
- Nonfarm payrolls will be released this Friday, showing slower job growth in January; however, I suspect the figures will be distorted by unusually cold weather during the survey week. We should see job openings show cooling trends in the labor market like prior months.
- Last year, many travelers returned to US airports, leading to increased initiatives to renovate and construct new facilities. This movement is reaching levels similar to pre-pandemic times, prompting airports to increase capital improvement projects and seek funds from the municipal bond market. Additionally, this trend has resulted in substantial returns for airport bondholders. This change is good news for this sector. For some time, we were skeptical of what would happen to airports and if they could sustain themselves during/after COVID-19, but we are over that question and are seeing stability return to that sector.
Bottom Line - yields are down again. As we have previously noted, the FED indicated a rate cut in March will probably not happen. We are looking at a rate cut sometime in the summer. We see yields holding here and moving down over the next few weeks.
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