Broker Check

Market News & Commentary - From the Desk of David Loesch 03.14.2024

March 14, 2024
  • MUNI bond investors cannot get enough paper as we move through the first quarter of 2024. This week, buyers scooped up a $3B bond offering issued for the hospital chain Common Spirit Health, buying up all MUNI and Taxable portions. A similar trend was a $3B new issue of DASNY (Dorm Auth St of NY – NY St’s Public Finance & Construction Authority), which was oversubscribed four times. These examples typify investor appetites for bonds and the continued desire to lock in rates before the FED starts cutting. 
  • New issuance was stagnant at the end of last year due to municipalities waiting for rate changes. However, this week’s visible supply is at $12.1B, the highest since January 10th. Ten deals worth $14.9B have come to market since the beginning of the year. Powell’s indication of a prolonged rate pause suggests a potential continuation of this trend, likely leading to slight yield increases. Bottom line, new issues are steady; however, we are consistently seeing deals oversubscribed 3X-6X.
  • Underlying US inflation exceeded expectations for the second consecutive month in February, driven by notable price increases for used cars, air travel, and clothing. This will likely reinforce the Federal Reserve’s commitment to maintaining its current monetary policy stance. 
  • The FED has consistently stated its target of a 2% CPI number and has indicated its willingness to act before reaching the threshold. The higher–than–expected inflation figures should not come as a surprise to market participants. With the CPI numbers this week, we expect the FED to hold here longer, AS WE HAVE BEEN SAYING for the last few months. I expect some rate moves in late summer or early Fall 2024. When this happens and you are not long paper, you will “think” it is too late to buy. 
  • Ken Griffin, founder of Citadel and Headlands, advised a cautious approach by the FED in lowering rates to prevent potential reversals later. This is an understandable stance. If the FED initiates rate reductions but then pauses or, worse yet, hints at raising rates, the consequences could be devastating. We agree on this point: the FED cannot be too “hasty” on moving rates; we and others prefer to see this move later in the year rather than sooner.  
  • The US jobless rate reached a two-year high in February despite robust hiring. This figure indicates a tempered yet resilient labor market with an unemployment rate of 3.90%. I anticipate a gradual increase in these figures over the next year, potentially expediting rate cuts once implemented.
  • President Biden unveiled a new budget proposal for the upcoming fiscal year, including tax hikes for individuals and corporations. This development will not only boost the appeal of MUNIs but also paradoxically favor the asset class we specialize in trading. Overall, this should be “good” for MUNIs as we move into the 3rd Qtr. of the year.

         The bottom line is that Munis are steady despite mixed inflation reports. Investors have a huge appetite for tax-free bonds, and fixed-income markets maintain firm but cautious optimism. 

 

 

 

At The DRL Group, we specialize in helping high-net-worth investors maximize tax-free returns by proactively maintaining their custom bond portfolios through all market conditions.


David Loesch

dloesch@drlgroup.net

www.drlgroup.net

605-B Park Grove

Katy, TX 77450

866.664.4040 (toll-free)

281.398.8600 (direct)

 

 

 

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