Broker Check

Market News & Commentary - From the Desk of David Loesch 04.11.2024

April 11, 2024

The Road to Rate Cuts Just Got a Little Bumpier

The release of the CPI report, a crucial indicator of inflation, has significantly impacted the market's expectations for rate cuts. The report revealed that March's Consumer Price Index (CPI) figures rose 3.5%, a clear signal that the Federal Reserve (Fed) will not be hastening any rate cuts.

The market's response to the CPI report was immediate and severe. The 10-year Treasury reached a high of 4.56%, and the stock market experienced a significant sell-off, losing over 450 points. This reaction clearly indicates that the market is adjusting its expectations for rate cuts.

The CPI report affirms there will be no smooth sailing to reaching the Fed's inflation target of 2% and that “higher for longer” interest rates are the most plausible outcome. Furthermore, minutes from the Federal Reserve Committee's March Meeting indicate that most policymakers favor driving at a slower pace. The CPI figures and last week’s job report have complicated the rate-cutting timing. The meeting notes reflected that the Fed is still biased toward cutting but will be watchful.

While the market digests these latest inflation figures, the focus will now shift to the strength of corporate earnings, at least until the subsequent figures are announced.

The Bottom Line for MUNIs is that yields will remain elevated for the next Qtr. We are still determining when any cut will be. The FED will not want to get this wrong; therefore, they might have to wait “too long” to cut it. If you are a long-term buyer and seeking ~4.40% Tax Exempt Returns, this is an excellent time to enter; if you are worried about the volatility, sit on the sidelines. Both strategies are risky, depending on your objectives. We are buying here opportunistically while staying either <4 years or 15-19 years, not buying in the belly of the curve. If you are concerned about what you own, call us; we can walk you through your portfolio with clarity while providing a little optimism. 


Thank you for taking the time to read.

More Market Insights


  • Historically, March is a month where seasonal patterns are favorable for disinflation. Yesterday, March's core CPI came in the same as February's; even if it maps to a lower core PCE inflation reading, this is not a good development in the fight against inflation. Many economists think the FED will strongly signal that the disinflation momentum is slowing, but those expecting a rate cut in July will have to wait. The bottom line is that these numbers were not favorable for any rate cut anytime soon, and now some are thinking of one cut this year; again, the FED cannot get this wrong.

  • Yesterday, we saw a slump in bonds (all paper, both domestic and global) again as traders reduced their wagers on rate cuts. MUNIs slid +6 on the long end, and T Bills continued to increase in yield. For those waiting for higher yields, we are here.

  • If you are a buyer of California paper, the yield premium for CA bonds has jumped, just as the most populous US state readies to borrow $1.5B while staring down a significant budget deficit. Some investors will only buy CA names. As a friendly reminder, we trade CA paper daily. 

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)

 


Securities are offered through New Edge Securities, Inc., a registered Broker-Dealer, FINRA and SIPC member. The DRL Group is not a subsidiary or control affiliate of New Edge Securities, Inc.New Edge Securities, Inc. has no affiliation with Bond Desk Trading LLC, Bond Trader Pro, Tradeweb Direct, Bondpoint, TMC, or any other ECN.

Do not buy discount bonds based on the Yield-to-Call (YTC). YTC does not indicate total return; this yield is valid only if the security is called. Bonds may be callable on multiple dates or any date following the first call date, so yield to call is based on the earliest stated call date. Discounted bonds may be subject to capital gains tax. Bonds may be subject to OID (Original Issue Discount). Bonds could also be subject to the DeMinimis Rule; please consult your tax advisor for further clarification. Insured bonds are issued for timely principal and interest payment only, do not cover potential market loss, and are subject to the insurance company's claims-paying ability. Municipal income may be subject to state, local, and Alternative Minimum Tax (AMT) taxation. Corporate and Municipal securities are subject to gains/losses based on the level of interest rates, market conditions, and credit quality of the issuer. Non-rated (NR), With-Drawn (WR), or below investment grade bonds, lower-rated bonds carry a greater potential risk of default & should be considered by sophisticated investors only.

Prices and availability may change without notice at any time. The securities described herein may not be eligible for sale in all jurisdictions or to specific categories of investors.

This summary is for informational purposes only and is not an offer or solicitation to purchase, sell, recommend, or endorse any security or issuer. New Edge Securities, Inc. and DRL Group do not represent this information's accuracy, completeness, or timeliness.

This report does not regard any recipient’s specific investment objectives, financial situation, or needs and is based on information obtained from sources believed to be reliable. No independent verification has been made, nor is its accuracy or completeness guaranteed. 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. NewEdge Securities, Inc. accepts no liability for any loss or damage of any kind arising out of the use of this report. Contact your tax advisor regarding the suitability of tax-exempt investments in your portfolio.

Reminder: E-mails sent through the Internet are not secure. Do not use e-mail to send us confidential information such as credit card numbers, change of address, PINs, passwords, or other important information. Do not e-mail orders with time-sensitive instructions. This e-mail is not an official trade confirmation for transactions executed for your account. Your e-mail message is not private; 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.

 

Call us today at 281-398-8600 to invest in these or any of our other offerings.