Broker Check

Market News & Commentary - From The Desk Of David Loesch 03.23.2023

March 22, 2023

Low Muni supply and higher demand are causing prices to go up. Learn more here...

  • Amid repercussions of two U.S. bank takeovers by regulators and the spread of uncertainty to European banks, stocks trended higher this week on the strength of the technology sector. Stock prices gyrated as investors wrestled with banking troubles that appeared to spread to Europe. Worries of financial instability rocked financials and sent bond yields falling. Investors poured into Treasuries and Muni's as expected in a flight to quality, but the dash into technology stocks was a surprise. Falling yields made the high-growth names more attractive. With this said, we are seeing a significant move into High-Grade MUNI and Corp paper over the last week. Along with the lack of supply and cash moving into the markets, we should continue to see yields trend down.
  • In just a few days, the outlook for interest rates changed dramatically. Rather than anticipating higher rates, current expectations are that rates will drop steadily in 2023. Speculators expect the Fed to drop interest rates to 3.5% and 3.75% by late this year. The lower rates would bring some welcomed relief to the banking sector, which has faced challenges due to the Fed's rapid increase in short-term interest rates in 2022. Many think we will see a 25bps move on 3/22. The DRL Group is "in this camp"; however, the comments from the FED post-meeting will be more critical.
  • Higher-rated hospital bonds have been a surprising star performer in the Muni market this year. Investment-grade hospitals, which we trade, are up 2.62% year-to-date. Last year’s COVID pandemic was historically tricky for hospitals as Fed Fund supplements wound down, requiring repayment of accelerated Medicare payments, surging labor costs, and postponed medical treatments. A handful of hospital systems have many challenges; however, if you look closely, several have held up very well and have weathered that storm.
  • Short-term inflation expectations fell in early March to the lowest level in nearly two years, and long-run views also eased. Consumer sediment continued to fall due to persistently higher prices. Many expect inflation to rise by 3.8% over the next year, the lowest reading since April 2021. Also, prices are forecasted to advance 2.8% over the next 5-10 years, the weakest in 6 months. Bottom line, inflation is continuing to come down, and our markets will continue to trade well as this happens.
  • As we know, UBS agreed to buy Credit Suisse Group in a historic $3.2B government-brokered deal to contain a confidence crisis that had started spreading across global financial markets. The transaction is an all-share deal with extensive government guarantees and liquidity provisions. We may see more regionals show signs of trouble over the coming weeks, adding to volatility in all the markets. 
  • Visible supply, a gauge of what underwritings are coming to market over the next 30 days, begins the week at $5.5B, below its 2023 average of $7.10B. Supply continues to be lower than the 2022 average. I expect these numbers to remain steady as we get through April, helping our markets over the coming weeks. Issuance continues to be low. Once we got past the large TX Gas deal, we quickly got to a one-month low. The broad drop reflects the slowest start to a year for sales since 2018, as the FED's move to lift rates and tame inflation has ratcheted up borrowing costs for municipalities. Overall, yields should continue to move down slightly despite a 25bps move today (expected). Product is tight, and issuance is low, from the lows of October 2022, are down ~30bps. 

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.

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David Loesch

605-B Park Grove

Katy, TX 77450

866.664.4040 (toll-free)

281.398.8600 (direct)


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