Broker Check

Market News & Commentary - From The Desk Of David Loesch 02.23.2023

February 22, 2023

  • NY State lawmakers could solve the funding deficit facing Mass Transit Auth NY (MTA) if they pass the Governor's proposed budget. This budget seeks to increase a payroll tax on businesses in the region served by the Authority's subways, buses, and commuter rail network. I am not a fan of continuing to tax others for poor fiscal management; however, should this budget pass, you could see a rally in this debt based on the news.
  • Texas officials gave the go-ahead for a $3.6B bond sale designated to bail out natural gas utilities for costs incurred during the deadly 2021 Winter Storm. The approval is a significant step for this transaction which, when priced, will be the largest MUNI bond sale in TX history. This deal is expected to price on March 8th or 9th. This storm caused enormous losses when the bitter cold crippled the state’s energy infrastructure, and fuel prices soared to never seen before. This bond issue will add to the visible supply in March.
  • Many FED governors indicate that the US Central Bank should keep raising rates while inferring they plan “to continue to raise the Fed Funds rate until we start to see more progress." The bottom line is that rates will continue to increase, perhaps with a 50bps move in March.
  • NYC had its bond rating upgraded by Fitch Friday as rising personal income tax collections boosted its rainy-day fund to a record high of $8.3B. Fitch raised the GO ratings one level to AA from AA-. This upgrade comes, oddly enough, in advance of a $680M bond sale this week. 
  • Visible supply begins the week at $5.40B, just below its 2023 average of $5.5B - this will remain low based on current rates. I suspect we will see an uptick in March which could potentially put pressure on the markets; however, we believe it will be slight. (Following bullet point)
  • Many feel the market continues to feel "heavy"; however, I believe we will see some reversal after the supply thins out in March. As previously discussed, over the last 30 days, January coupons helped, Feb was flat in cash flow, and in March, we will see a heavier calendar which will cause pressure on Munis.
  • MUNI yields have increased ~20bps over the last week, making the long end > 4.30% on insured paper. The shorter end of the curve has risen by 25bps in the last week. We could see strength as these yields move up. We know that sounds counterintuitive; however, capital is sitting on the sidelines to scoop up these higher yields.
  • Statements for February will most likely be down across the board on most asset classes, including fixed income. As mentioned, yields have moved up; therefore, be prepared for lower evaluations on your statements, but better than we saw in 2022.
  • Credit issues continue to be nonexistent for high-grade paper; however, many, including me, are calling for more defaults on riskier credits in 2023 due to a slowdown in the economy. The DRL Group recommends staying with quality. If you have questions about what you own, please call us

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David Loesch

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