- The FED raised rates .25 and signaled six hikes for the remaining year, launching a campaign to address inflation. Policymakers voted 8-1 to lift their key target range to .25 to .50, citing the first increase in rates since 2018 after two years of holding down borrowing costs. I suspect (as Powell indicated) there will be several hikes to come this year; however, Powell also pledged to be "nimble" considering the delicate state our world is in now.
- The FED faces the arduous task of securing a soft landing for the world's largest economy for the first time since the early 1990s. With the Ukraine/Russia conflict, the implications for the US economy are highly uncertain at this time. Still, the invasion and related events are likely to create additional upward pressure on inflation and weigh on economic activity in the near term. If the Fed tightens too slow, it allows inflation to run out of control, too swift; the Central Bank could roil markets and tip the economy into a recession. Many in the street are starting to predict this could happen due to the inflation numbers/rate moves we could see over the coming months.
- Morgan Stanley raised its oil price forecasts for the latter half of 2022 and 2023, citing tighter supply/demand balances worldwide. The bank increased its 3Q price to $120 a barrel, up from $100. This point will affect the overall market as rates and oil move, putting added pressure on all markets.
- The recent surge in bond yields makes it harder for companies and governments to borrow funds in the US debt markets. This issue will worsen as the FED hikes rates, which could slow the underwriting of corporate and MUNI bonds. This point could be a net positive for our markets. We already know about the slowdown in new issues; I suspect this will be magnified with the rate hikes over time. Companies at this time are "standing down" based on these yield moves.
- Almost every day of 2022, investors have been greeted with a significant amount of bonds for sale. This selling pressure has been driven by nine weeks of outflows from MUNI funds is the longest stretch since 2018. We are getting pressure from fund managers who must meet redemptions from their funds. Last Thursday marked the 19th day where the number of muni bonds out for the bid reached at least $1B. This point is a strong reversal from 2021, where it only happened twice. This issue has created a large spread between the Bid/Ask, causing evaluation prices to decline.
- A reference to the point above, the level of bonds out for the bid in 2022 still pales compared to the steep pandemic induced selloff in spring of 2020, where the amount was averaging $4.1B for several weeks.
605-B Park Grove
Katy, TX 77450
This report has no regard to the specific investment objectives, financial situation, or particular needs of any specific recipient. This report is based on information obtained from sources believed to be reliable, but no independent verification has been made, nor is its accuracy or completeness guaranteed. This report is published solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. Opinions expressed herein are subject to change without notice. The division, group, subsidiary, or affiliate of NewEdge Securities, Inc., is under no obligation to update or keep the information current. The securities described herein may not be eligible for sale in all jurisdictions or to certain categories of investors. NewEdge Securities, Inc. accepts no liability for any loss or damage of any kind arising out of the use of this report. Please contact your tax advisor regarding the suitability of tax-exempt investments in your portfolio. Income from municipals may be subject to state and local taxes and the Alternative Minimum Tax. Corporate and Municipal securities are subject to gains/losses based on the level of interest rates, market conditions, and credit quality of the issuer. As with any security, there is an inherent market risk possibility as to principal if the security is not held to maturity. The non-rated bonds (NR) should be considered for investment by knowledgeable and sophisticated investors. Additional information will be made available upon request.
Securities are offered through NewEdge Securities, Inc., a registered Broker-Dealer, Member FINRA/SIPC.
The DRL Group is not a registered entity or a subsidiary or control affiliate of NewEdge Securities, Inc.
Bonds are subject to market and interest rate risk if sold prior to maturity. Prices and availability may change at any time without notice. Insured bonds are subject to the claims-paying ability of the insurance company.
Reminder: E-mail sent through the Internet is not secure. Do not use e-mail to send us confidential information such as credit card numbers, change of address, PIN numbers, passwords, or other important information. Do not e-mail orders to buy or sell securities, transfer funds, or send time-sensitive instructions. We will not accept such orders or instructions. This e-mail is not an official trade confirmation for transactions executed for your account. Your e-mail message is not private in that it is subject to review by the firm, its officers, agents, and employees. Unless expressly stated in this e-mail, nothing in this message should be construed as a digital or electronic signature.