- This week, Bloomberg News reported that some of America’s biggest bond buyers, pension funds, and corporate-defined benefit plans, flush with cash, plan to re-allocate to bonds to the tune of $1T. This “de-risking” move will have a “far-reaching” impact from cash flooding into the fixed-income market. This should have a positive effect on all Fixed Income debt.
- According to JP Morgan’s strategist, Marko Kolanovic, “This represents a unique and urgent opportunity for these funds to lock in favorable funding status by selling equities and buying bonds.” (See full article below) As these buyers enter the market, it should cause additional tight supply and keep demand strong.
- MUNIs are poised for the best start of the year in more than a decade amid slower sales and robust investor interest; this should be no surprise with the comments over the last few weeks. With those worries easing, even with the FED hike coming this week, investors are more confident that the Central Bank is nearing the end of its tightening cycle, which has contributed to a flurry of cash added to MUNI bond funds. With this optimism and overall confidence in the markets, we should continue to see this rally.
- The DRL Group has been saying January’s performance has benefited from fund inflows, bond redemptions, light supply, and restoration of investors' confidence, all of this with "moderate" inflation. February is typically a strong month for interest payments, as cash should flow back into the markets. The new-issue calendar will stay light until March as issuers are waiting to determine the FED's next course of action, with comments coming out this week. Pricing should remain firm.
- Another aspect of issuance, I suspect we will see this pick up once the FED indicates they are “nearing the end” of the rate moves; this does not mean we will see a flood of issuance. Municipalities will start to line up their books for refunding's again, which should happen in the back half of 2023.
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