- Applications for State Unemployment Insurance unexpectedly rose for the first time since January, mainly (and surprisingly) concentrated in the South and Midwest states. Initial unemployment claims increased by 23,000 to 248,000 in the week ending 2/12. This figure will be something to watch over the next two quarters.
- The new-issue primary market continues to be "weak" as issuance continues to fade. The average is currently $9.7B, well below the $11.4B average. The DRL Group has been discussing this for quite some time. Issuance will continue to be low through the middle of this year, helping prop up our markets despite the rate moves. I suspect we will see a continued product decline over the near term in MUNIs; however, I also suspect we will see that start to slow as we move into the Spring.
- PR will be exiting bankruptcy over the next month. PR has allocated $10.8B in cash payments to bondholders, insurance companies, and public workers. I suspect the junk paper will further increase in value than what it already has. This exit will be a huge plus to our markets as it will take pressure off the insurance companies. This issue has been plaguing our markets since 2017.
- It has been interesting to see how 2022 has unfolded from a trading perspective. It is like on 1/1/22; everyone said, "rates are going higher, and we will have multiple increases," and the FED will come out with guns blazing. The FED's guidance suggested a marked shift away from compliance as it dealt with inflation and increased market volatility. Both bond and stock markets sold off hard without a single policy move by the FED. Once we have a policy move, we should see a small rally. This rally will be short-lived. I believe high-grade munis will not make it to 4% YTW, but we could see 3.50% YTW over time. Once this happens, previously sidelined buyers will participate. However, we cannot predict what rates will do in one to three years in the long run. I do not foresee the "Jimmy Carter" rates that our parents saw, as I think our country has learned its lesson. The bottom line is that there could be more pain in the near term, but I believe it will settle down by summer.
- Rapidly climbing inflation is accelerating calls from Governors and state leaders to provide immediate tax relief to cash-strapped residents facing higher prices on everyday products such as gas, milk, and electricity. Last week, the Governors of Maine and Kentucky joined several states, including Illinois, California, Massachusetts, Florida, Alabama, Washington, and Missouri — who are considering offering quick but temporary relief to taxpayers crushed by a relentless surge in inflation in recent months. The Consumer Price Index (CPI), which measures what Americans pay for goods and services, reached another 40-year high last month, soaring to 7.5%. This increase was due to strong consumer demand and pandemic-related supply disruptions. I believe this will continue to be the talk for the next few months.
- Sales of previously owned homes unexpectedly increased to a one-year high as people expect a surge in mortgages rates. Also, Sales Tax Revenues increased 20% in December 2021 compared to December 2020. I think we will continue to see these increases as we move forward with a new normal.
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