- IL reported that their general fund revenue in April jumped 46% from a year ago. The total general fund budget rose to $5B in April 2021 from $3.40B in April 2020. We will continue to see these types of moves as states and cities reopen due to the vaccines. This trend will be a considerable boost to MUNI paper as we move through 2021. While getting concerned about the equity markets "overheating" and seeking safe assets, investors are shifting into MUNI funds and individual bonds.
- As a sign of things opening, the Chicago Auto Show will be a premier showcase, attracting thousands of motorheads to the McCormick Place in July. This convention will mark the resumption of the largest US Auto show and will also be the return of conventions to major cities like Chicago. It will be interesting to follow this story to gain insight into how the public reacts and what the attendance will be.
- Janet Yellen indicated that she and the US would seek to end the global "race to the bottom" on corporate taxes and be prepared to pay more. The current administration has made it clear that corporate taxes and your taxes will be going up over the next 12 months. Many believe that we will not see these taxes be retroactive, most likely going into effect 4th Q of 2021 or 1st Q of 2022.
- Many states are seeing record surplus’ as the economy continues to improve. Texas indicated yesterday they anticipate an unexpected budget surplus as tax collections rebound along with the nation’s economy. Texas projects it will have $115.7B or revenue available for general-purpose spending starting this September, which is about $3B more than estimated. Because of this additional revenue" in many states, most MUNI's will benefit.
- MUNI bond fund managers are struggling to find securities to buy as capital continues to pour in., Debt sales will be heavy in May, and some are anticipating that the summer will be steady with new deals. Most in the street, including me, continue to believe that as we move into the Fall with monies being "put back into" the municipalities from the latest package from Washington, municipalities will slow down their issuance as they will not need to come to the markets. CITI and BOA expect a busy summer, with $42B coming out in May alone ($38B is average); this will not be enough to satisfy the funds. In addition, most A-rated new issue paper is oversubscribed ~3x with yields ~5bps below market.
- Moody's boosted the outlook for toll roads as the pandemic subsides. I find it strange that S&P has been quiet on this topic. However, I would expect them to have comments as we move through the summer. I believe the "COVID" type trade, like toll roads, will continue to be a safe bet, particularly with the infrastructure push by the Biden Administration.
- President Biden's $4T vision of remaking the FED government's role in the US economy is now in the hands of Congress, where both parties see a higher chance of at least some compromise. Biden has been clear, he knows this is a negotiation, and he also has indicated that the talks will require compromise at some point, and he wants to move the package forward in a bipartisan way if that is possible. There will be many crucial decisions coming up that will impact our markets related to taxes, all of which should be a net positive to the MUNI markets.
- Janet Yellen continues to reassure the American people that if inflation becomes an issue with Biden's plan mentioned above, she will have the tools to address it. She indicated that inflation would spread out evenly over the next ten years, and we will not see hyperinflation linked to the government stimulus. Yellen also said that the US has the fiscal space to make investments into our economy, with rates likely to remain low.
David Loesch
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