- Last night 4/28, President Biden took a risky move while calling on some Americans to pay higher taxes to fund the $1.8T deal he proposed. He promised sweeping changes following the pandemic, indicating this will be a "once in a lifetime investment" in our American families. Trillions will be allocated for spending on infrastructure, childcare, paid leave, community college tuition, and subsidies for working-class families. Biden was very clear, American top wage earners should and will foot the bill. I suspect this will have lasting effects on MUNI's and how they will perform over the next several months.
- As we expected, the FED said they would not let up on monetary policy despite an economy in acceleration. The Central Bank indicated it would keep rates at near-zero and buy at least $120B bonds per month for the foreseeable future. The FED also indicated that the economic strength and inflation we see are temporary due to a "pick-up in demand" post-COVID. I suspect this will be the policy for quite some time. Powell indicated in his closing remarks that the economic recovery is uneven and far from complete. He sees these one-time price increases will only likely have transitory effects on inflation.
- US college enrollment dropped to the lowest level in almost two decades last year as the pandemic shut down schools and persuaded students to put their academic plans on hold. About 2MM of the 3.1MM high school graduates who signed up for college have found themselves stuck at home after graduation. This situation will impact the MUNI markets for lower-tiered regional colleges with small endowments.
- Home prices are soaring, the most in 15 years. With low mortgage rates (historic lows) and a minimal inventory on the market, property values across the board have moved up 12% on average across the country. I suspect this will continue to perform over the next several months; with inventory low and the lead time to build, you can expect pricing to stay firm.
- AAA callable yields: 1 year .04, 2yr .06, 5yr .37, 10yr .91, 20yr 1.35, and 30yr 1.56. As indicated, I would expect this market to continue to trade in this range. With a huge amount of bonds coming due over the summer, the amount of capital will outstrip the supply of paper.
- The FOMC indicated it would maintain a steady trajectory at the April meeting. The FED will continue to remain firmly committed to the policy glide path they have set since 2020. As we know, at the March meeting, policymakers signaled a willingness to tolerate a moderate rebound in rates as evidence of more optimistic sentiment from the market. Since that meeting, the 10T drifted lower ~10bps. The 1.50%-1.75% range will be the number for the near future.
605-B Park Grove
Katy, TX 77450
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