Broker Check

Market News & Commentary - From The Desk Of David Loesch 05.12.2022

May 12, 2022
Share |
  • 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.

 

 

David Loesch

dloesch@drlgroup.net

www.drlgroup.net

605-B Park Grove

Katy, TX 77450

866.664.4040 (toll-free)

281.398.8600 (direct)

281.398.8607 fax

 

This report has no regard to the specific investment objectives, financial situation, or particular needs of any specific recipient. This report is based on information obtained from sources believed to be reliable, but no independent verification has been made, nor is its accuracy or completeness guaranteed. This report is published solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. 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. The securities described herein may not be eligible for sale in all jurisdictions or to certain categories of investors. NewEdge Securities, Inc. accepts no liability for any loss or damage of any kind arising out of the use of this report. Please contact your tax advisor regarding the suitability of tax-exempt investments in your portfolio. Income from municipals may be subject to state and local taxes and the Alternative Minimum Tax. Corporate and Municipal securities are subject to gains/losses based on the level of interest rates, market conditions, and credit quality of the issuer. As with any security, there is an inherent market risk possibility as to principal if the security is not held to maturity. The non-rated bonds (NR) should be considered for investment by knowledgeable and sophisticated investors. Additional information will be made available upon request.

 

 

Securities are offered through NewEdge Securities, Inc., a registered Broker-Dealer, Member FINRA/SIPC.

 

The DRL Group is not a registered entity or a subsidiary or control affiliate of NewEdge Securities, Inc.

 

 Bonds are subject to market and interest rate risk if sold prior to maturity. Prices and availability may change at any time without notice. Insured bonds are subject to the claims-paying ability of the insurance company.

Reminder: E-mail sent through the Internet is not secure. Do not use e-mail to send us confidential information such as credit card numbers, change of address, PIN numbers, passwords, or other important information. Do not e-mail orders to buy or sell securities, transfer funds, or send time-sensitive instructions. We will not accept such orders or instructions. This e-mail is not an official trade confirmation for transactions executed for your account. Your e-mail message is not private in that 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.