- The University of MI's widely-followed Consumer Confidence Index continues to decline and is currently at its lowest since 2011. The last time the consumer confidence level was this low was when the unemployment rate was 9%. I believe this number is due to the weight of inflation, not jobs, and will not rebound until we see CPI numbers come down consistent
- Columbia Threadneedle is the latest firm to share with the street that they are buyers of longer-dated MUNI.s as they believe inflation has peaked along with yields. They indicated yesterday that pricing would likely stabilize and possibly rise as the year progresses. They also think the higher yields on the longer-term bonds will probably be a boon in the coming months and expect a flatter curve as the FED tightens monetary policy.
- Reports indicate that the FED could have monthly losses in early 2023 if the current interest rate hike pricing is realized. Bloomberg calculates that the FED's net interest income and total net income may dip into negative territory if the Central Bank raises the FED Funds target rate above 2.75%. This indicates that moving the FED Funds rate too high will negatively impact the T's balance sheet. This point goes back to the opinion we have discussed that rates cannot go “too high” from the Treasury’s affordability standpoint.
- Reports this week show that mortgage demand has fallen to the lowest level in 22 years. Applications fell 7%, 21% lower than a year ago. These numbers have a direct correlation to the rate moves we have seen.
- Bank of America Strategists and Asset Managers said they are buying High-Grade MUNIs to offset the risks of a recession in upcoming years. BOA indicated they continue to advocate MUNIs, focusing on higher-grade securities, while the FED delivers more hikes and the economy slows. They also said that investors should be more selective regarding high-yield paper.
- Goldman Sachs said the US economy is still on a narrow path to a soft landing. Improved inflation figures and other factors suggest the FED can pull off its aggressive interest rate hike plan without tipping the US into a recession. This thought is a slight deviation from what their chairman indicated earlier. Supply chain flow weighs heavy on the soft-landing issue. It will be a difficult balance to not tip into a recession; however, it can be avoided.
- New-issue sales of MUNI bonds due within 18 months are at $5.1B to date, down 41% from the same period last year and the lowest total since 2013. Even with a summer bump, total new-issue sales for this year are not expected to surpass 2019 or 2020 levels; there is simply no need. At the end of last year, the short-term data was less about cash flow borrowing and more about BANs. Concerns about higher rates pushed municipalities to issue paper out long instead of short. These factors should continue to help our markets as we move through the year.
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