- It has been a hectic start for the MUNI trading year, while opportunities are starting to emerge amid one of the steepest selloffs on record for the $4 trillion MUNI market. The par amount of bonds traded has soared to $1.2 trillion so far this year, up 40% year-over-year. The FED hike, inflation, and mutual fund selling have contributed to the surge in activity, causing rates to move dramatically in a short period of time. It is understandable why these numbers are the way they are. More and more Broker-Dealers and money managers indicate that this dip has created unique buying opportunities compared to last year. The price adjustments have given investors the unique opportunity to lock in yields not seen in a very long time.
- Blackrock, the world's largest asset manager, is advising investors to buy MUNI bonds ahead of what is typically a strong summer season for the asset class. "We believe that MUNIs once again provide an attractive opportunity for investors. Seasonal trends are set to turn more historically favorable and while/demand technicals should improve as outflows moderate from tax time weakness and issuance turns negative in the summer." It seems like there are more and more investment houses calling to move money into this asset class as of late. With yields higher than they have been in years, it makes sense. The FED's interest rate increases, in my opinion, will lead to somewhat higher unemployment as it attempts to bring about a "soft landing" while tackling the inflation elephant in the room. I suspect we will see growth below the typical trends, leading to a slight rise in unemployment. Many FED members call for inflation to come back to 4% before declining to 2.50%. The target level is 2.00%, expected in 2024. It is hard to predict the CPI numbers and rates in 2024, and I am surprised that the FED is going out that long in discussing rates.
- The FED is set to begin infusing states and local governments with about $105 billion of aid, the second installment of pandemic relief payments (The American Rescue Plan). These funds will strengthen municipalities' credit quality which is positive for our market.
- Investors rushed to the safety of the USD while global stocks slid ever closer to a bear market as the FED tightened and China's COVID lockdowns jaded the outlook for the economic growth. The dollar extended a two-year high, rising against all its major peers.
- Friday, US employment increased robustly in April, while wage growth moderated through a surprise drop in the participation rate, suggesting the labor market will remain tight. Average hourly earnings rose from a month earlier. The unemployment rate held at 3.60% as the size of the labor force declined.
- Economists see recession risks as low for now but rising in 2023. They lowered their 2022 GDP forecast to 2.7% from 3.3% after 1Q22's negative print and revised state and local government tax-receipt forecast to 5.7%.
- Illinois scored another upgrade this week, as Fitch pointed to "fundamental improvements in Illinois' fiscal resilience" and "sustained evidence of more normal fiscal decision-making" in upgrading IL's rating two notches to BBB+.
- Year-to-date new issuance is 78% tax-exempt, 16% taxable and 5% AMT. 78% of new issues are new money, and 22% are refunding's. I am surprised by the small issuance of AMT, which tells you much of the new issuance is "traditional" MUNI paper.
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