With states and local governments issuing $12.5B of debt this week, now is a perfect time to consider adding MUNIs to your portfolio.
- Demand for MUNIs will be tested this week when states and local governments plan to issue $12.5B of debt, the most since March 5. Only $88B long MUNIs sold this year, down 23.5% from 2022. We are seeing yields spike because of this and possibly tax selling. We view this as a selective buying opportunity.
- NY State collected $111.7B in tax revenue for the year ending March 30, $2.9B higher than forecasted. We continue to see this trend in other states, leading to many upgrades in the past 30 days.
- With the political battle over the statutory debt ceiling set to ramp up again, the Treasury's tax receipts will give a clearer idea of how much cash it will have on hand as it approaches the limits imposed by the $31.4T cap. This week's question is when/if the US "could" default as the Treasury reveals how big its tax hike should be. It is a shame this issue is being used for political gain; however, I am unsurprised.
- Massachusetts was upgraded one notch to AA+ by S&P, which cited Commonwealth's efforts to strengthen its fiscal picture, bolstered by growing reserves and a strong economy. Like other states, MA emerged from the pandemic extremely strong in labor and finances.
- Many economists expect housing data to remain soft. They slid slightly in March, with the T Bills moving down in yield. I suspect the Fed will use these numbers in their May speech and contribute to "ease" in June.
- Yellen indicated lenders might pull back on credit after recent bank failures, enough to do some of the FED's work for them but not enough to change her economic outlook significantly. Yellen remains optimistic the US could avoid a recession.
- The City of Chicago expects narrower deficits over the next few years, thanks mainly to a rapidly recovering economy. According to a forecast published Tuesday, the city’s deficit in 2024 will top out at $85MM, down from a projected $473MM. We have been buying this credit for years, particularly on the insured side. Overall, Chicago, IL, CA, and NJ paper continue to perform well, and I believe we will see gains through the year's balance in these credits.
- Yields spiked over the last 48 hours. We see this change as a buying opportunity. Yields should continue to grind higher next week due to supply issues; this is an attractive entry point for long-term investors in high-grade Munis.
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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