Broker Check

Market News & Commentary - From the Desk of David Loesch 03.28.2024

March 28, 2024

 

  • MUNI bond yields have flatlined over the past eight weeks. However, a steady supply of maturing and called MUNI bonds during this time has cushioned the market from volatility. Over the next two months, the number of calls and maturities will lessen, and new issuance will stay the same, meaning yields could move up slightly due to supply/demand.

 

  • When Detroit filed for bankruptcy, it was among the first cities to file on its general obligation (GO) debt rather than its revenue debt. Fast-forward to Monday, Moody’s upgraded Detroit to investment grade citing “the expectation of the city will continue to bolster its financial resiliency and maintain the track record of solid operating performance.” This is a bold call for the rating agency; I suspect Detroit will continue to thrive over time. 

 

  • Federal Reserve Governor Lisa Cook said that the US Central Bank must take a cautious approach to cutting interest rates to allow more time for inflation to slow down in some segments of the economy. FED policymakers left rates unchanged at their meeting last week, at a two-decade high, and maintained their forecast for three rate cuts this year. I believe we will see rate cuts in late summer. 

 

  • The City of Houston announced it will bring a $1B bond issue to market to settle a firefighter’s pay dispute. The city’s CFO warned that this move would swell the annual budget shortfall by about 75% and possibly trigger a rating downgrade as the budget shortfall widens.

 

  • The collapse of the Francis Scott Bridge was undoubtedly a tragedy and a significant blow to the local area and the entire country. The Port of Baltimore is the 17th busiest port in the US in terms of tonnage handled. By these metrics, the traffic would appear to have minimal impact on the broader US economy; however, shifting cargo to ports in NY, NJ, VA, and GA requires logistical changes, not only for the shippers but also for the railroad lines to accommodate the various shipments. All these changes could cause delivery delays as these issues get worked out. This port is a major entry point for the auto industry and ethanol shipments for gas in the NE region of the country. Some economists are worried that rebuilding the bridge could “accelerate” inflation.

 

  • This bridge collapse should not affect the Maryland State Transportation Authority's bondholders, as key bond provisions and insurance coverage will protect the bonds. However, despite the above, I suspect you will see sellers and trading activity in the marketplace on this name.

 

  • As we move closer to the Presidential Election, the conversation circles around how a Democratic win would affect our market. The immediate focus in that conversation is on taxes. President Biden has already indicated his desire to increase taxes. He recently proposed raising the minimum tax rate for households earning $100k annually from 22% to 25%. This increase could be in addition to the roll-off of the Tax Cuts and Jobs Act of 2017 (TCJA), which will expire at the end of 2025. The TCJA reduced most of the seven individual tax rates, widened the tax brackets, and raised the standard deduction to double the previous level. These changes would be positive for the tax-free bond market and drive investors towards the only income-producing asset class the government does not currently tax. With a Republican win, the TCJA may continue, but with the current national deficit, taxes will have to rise Realistically, taxes should go up no matter who wins the White House.

 

 

 

 

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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