Broker Check

Market News & Commentary - From The Desk Of David Loesch 02.09.2022

February 09, 2022
  • The State of Texas' top oil and gas regulator approved a $3.4B bond sale to bail out utilities stung by substantial financial losses after the 2/2021 freeze. A newly established entity created by the Texas Public Finance Authority will sell the bonds within the next six months. This issue will spread out the repayment of the bonds by customers of 8 utilities involved for over 30 years. The bonds will cost customers $1.25 a month on top of their existing utility bills instead of hundreds of dollars at one time. This deal will be an excellent issue for our state as it will assist in building up the infrastructure of our power grid. I suspect the state will also use government funds and this bond deal to complete the projects.
  • Many cities have indicated that Federal funding has been critical to continuing with essential services such as mass transit during the pandemic. The City of Chicago announced yesterday they would be receiving a $912.1MM grant under the American Rescue Plan Act to assist with their city's mass transit authority. The funds will support the transit agency and its 10,600 workers as they continue to provide rides to the population of Chicago. I suspect we will see other cities (as we know NY has already received funding) announce they have/will receive funding from our government.
  • Issues underwritten for project "builds" are starting to run into problems with labor. Challenges are already piling up for Amtrak in handling personnel needs, communications with employees, and providing safe working conditions for the workers on the tracks. The issue is a gateway for Amtrak's Northeast Corridor, which stretches from Washington to Boston and is the most congested route in the US. Finding skilled labor for construction projects continues to be a challenge; many underwriters are starting to put this type of language in the Official Statements when underwriting these new issues.
  • The FED government is giving transit systems a temporary reprieve, having provided $69.5B in assistance so far. There is a ton of public transportation around our country. Many traders anticipate an eventual "government bailout" of our transit systems to assist cities and keep their internal systems from going bankrupt. As of now, most public transportation is already subsidized. MTA, the largest in North America, has received the most money. MTA's ridership is down by about half.
  • Traders are buying into hawkish posturing. Four months ago, the FED's consensus was for two 25bps hikes through December 2022. The S&P and NASDAQ have adjusted for this anticipated move. Now, traders are looking for five. The DRL Group sees at least four hikes for 2022 starting in March. Typically when the "actual" rate hike happens, you see a market rally based on the "news is out" mentality. MUNIs and T bills are bow priced in line with these moves.
  • Value states such as IL, NY, NJ, and perhaps CA reported "record" tax inflows from property taxes, sales, and income tax. IL state tax rose 37% in January alone. We have discussed how this will impact the muni markets, which will be very favorable. Over time I suspect these tax increases to taper off. They are not sustainable at the levels they are currently tracking. This will not hurt our markets, but because of these increased taxes, you will find more buyers "open to the idea" of placing capital in safe assets such as MUNIs.
  • Redemptions in March are average compared to previous months; there will be about $15.5B of bonds redeemed or paid interest for the first week of March - which should help our markets from a supply/demand standpoint.



David Loesch

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