Broker Check
Market News & Commentary - From The Desk Of David Loesch 05.13.2021

Market News & Commentary - From The Desk Of David Loesch 05.13.2021

May 13, 2021
Share |
  • The Treasury Department began laying out the groundwork for submitting applications for the $350B in relief funds for states and municipalities.  This framework will set up rules to ensure the money quickly flows toward COVID relief and other programs to support the economy, such as infrastructure.  The first step will trigger the release of funds to governments within days, which will significantly boost these municipal credit qualities.  Some guidelines include rehiring workers or supporting industries affected by COVID 19 issues. These states and territories cannot use the funds to pay for tax cuts and are prohibited from using the aid to fund debt payments, legal settlements, or deposits into rainy-day reserves.
  • Some states were surprised they could not use funds for debt service.  The details get tricky when it comes to paying back loans “from” the government with the funds.  The State of IL wanted to use the funds to pay back loans it took out from the Lending Program under the Trump Administration; however, the current administration has indicated this is not the proper method of utilizing the funds. It will be interesting to watch as our government guides the states during this process.  I also suspect S&P will be watching this as well to determine any upgrades/downgrades.
  • Alabama will end its participation in all federally funded pandemic unemployment compensation programs starting June 19.  The Governor indicated that the state is having trouble finding workers to fill vacant positions within certain businesses, and the "increased unemployment benefit" is contributing to this issue.  I suspect more states will follow this pattern. This issue was one of the reasons why unemployment numbers were “off” on the last report.
  • In March, Vegas welcomed 2.23MM visitors, the most since the February 2020 last month before the COVID shutdown.  I suspect these numbers in places like Vegas and NY will continue to climb as Americans continue to receive their vaccinations. Fitch and Moody's have commented that as occupancy rises, upgrades will happen; however, it is too soon to make that call.
  • The City of Chicago indicated it would divide its $1.9B shares of President Biden’s rescue plan by paying down debt and softening the economic impact the pandemic had on its residents.  $965MM will go to pay down debt and new infrastructure. As the money filters to municipalities, you will see more large cities go this route. This process will take bonds out of the system as they won’t need the money.
  • Judson College, a 183-year-old women's college in Alabama, will file for Chapter 11 and shut down amid declining enrollments. It will be interesting to see how many other smaller universities like this will close due to the pandemic and these issues.  Small institutions will not withstand the lack of funds if they have small, poorly managed endowments.
  • Visible supply begins the week at $9.7B, below the average of $10.5B. This trend should be consistent as we move through the summer. In addition, interest payments and redemptions will be high from June through August; therefore, demand should continue to outstrip supply.
  • Barclays cited risks in low coupon munis due to the possibility of increased capital gains tax. They noted should rates go higher, and if capital gains taxes increase, it could trigger a selloff in low coupon type paper (below 3%).  Bonds with coupons below the "standard" 5% have become a significant market share in recent years.  More than 2/3rds of bonds issued this year have coupons below 5%, up from 39% in 2018.  With investors hunting for yields, the prices of the lower coupon bonds have risen more than, the broader market, sparking perhaps a selloff when cap gains taxes move up. 

 

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 needs of any particular recipient. Based on information obtained from sources, this report is 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 construed as a solicitation or an offer to buy or sell securities or related financial instruments. Opinions expressed herein are subject to change without notice and the division, group, subsidiary, or affiliate of MACC., which 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 investors' specific categories. MACC 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 as well as 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 (NR) bonds should be considered for investment by knowledgeable and sophisticated investors. Additional information will be made available upon request.

Securities are offered through Mid Atlantic Capital Corporation (MACC), a registered Broker-Dealer, Member FINRA/SIPC.

The DRL Group. is not a registered entity or a subsidiary or control affiliate of MACC.

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: Email sent through the Internet is not secure. Please do not use email to send us confidential information such as credit card numbers, change of address, PINs, passwords, or other important information. Do not email orders to buy or sell securities, transfer funds, or send time-sensitive instructions. We will not accept such orders or instructions. This email is not an official trade confirmation for transactions executed for your account. Your email message is not private in that it is subject to review by the firm, its officers, agents, and employees. Unless expressly stated in this email, nothing in this message should be construed as a digital or electronic signature.