Broker Check

Market News & Commentary - From the Desk of David Loesch 04.04.2024

April 04, 2024
  • Markets gave up ground this week. Treasury yields are holding near a 4-month high. Economic numbers continue to be strong, and rate cuts are fading more into the future, which is why you see a price retreat in equities and bonds. I suspect this will continue over the next couple of months. I now think rate cuts are not going to happen until Fall. MUNI’s usually lag T bills, we have seen +15bps move over the last two days with T bills holding steady on Wednesday.

 

  • Moody's Ratings Service has downgraded Butler Health System in Pennsylvania to junk status and a one-step decrease for its merger partner Excela Health. On Wednesday, the company reduced Butler's rating from Baa3 to Ba1 with a negative outlook, while Excela Health's rating was lowered by one level to Baa3, the lowest tier of investment grade. These two hospital operators in western Pennsylvania merged last year to establish Independence Health System. Another reason why we do not trade this type of credit, we are not health system buyers unless we know the system.

 

  • Fund flows: Investors added as much as $564 million to municipal-bond funds last week, despite yields moving up against them. The gain marks the sixth consecutive week of inflows. I suspect with the volatility we have seen over the last few days; this trend will reverse this week and next. 

 

  • Redemptions and maturities in the next 30 days total $14.8B, compared with $13.9B a week ago. This issue will create a higher demand for bonds as more cash becomes available and investors seek to replace these securities. This normally would hold bonds “steady” however with yields moving up in T bills and equities struggling, we might see paper trade flat or slightly down over the next week or so.

 

  • State and local governments have borrowed nearly $9 billion for affordable housing this year, marking it the highest amount for at least a decade. This trend comes as purchasing a home in the US remains prohibitively expensive... We should see more issues like this, which should help the industry and potential home buyers until the FED lowers interest rates.

 

  • Michael Barr (FED member) warned that banks are likely to continue to face stress from the struggling commercial real estate sector for an extended period. How does this impact MUNI’s? Overall, should banking issues arise, we should see MUNI’s perform well in that environment as it should be viewed as a “safe asset class”.

 

 

 

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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