- Home prices rose for a 3rd straight month, pushed up by growing buyer demand for a tight supply of listings. A national gauge indicated price increases rose .5% in April from March, and the inventory shortage keeps a lid on transactions. All of this points to the FED commenting on "there could be more hikes in the future," based on this news, you would think this would happen.
- Muni paper coming to market now has extended settlement dates touching 4.45%-4.60% based on new issue pricing. I suspect these deals are accelerating before any move by the FED. We should see more deals like this soon. We are buyers of New Issue paper from time to time; however, we are not fans of longer-dated settlement dates out of> 10 days from the trade date, which has been a recent underwriting trend. There could be value in this market with the right direction.
- President Biden indicated in a speech this week that he feels the US will avoid a recession that economists and banks have long predicted. This issue is a debated topic, as many are expecting a slowdown. Either way, MUNIs should show gains as we move into the balance of the year.
- I suspect the market continues to be less sensitive to inflation data and has keyed on other indicators of economic growth, such as retail sales and employment. All fixed-income has been steady mostly; even the high-yield market has gotten into a solid flight path due to stable numbers from the economic front and the anticipation of a one-and-done hike coming. Bloomberg economists and many others disagree with Biden on the above point; we shall see how it plays out. I think we will see a slowdown over time in both labor hiring (seeing it already in IT) and durable goods orders.
- Morgan Stanley said this week that they expect the FED to raise rates at its July meeting after Powell signaled the FRB is not done raising rates. The DRL Group has been telegraphing one more rate move for over two months, and I suspect it will be July or August; once that happens, many, including me, imagine the chairman will signal a long pause. If this happens, we think rates will move down slowly over time.
- Many economists are indicating that the Central Bank should set the target inflation rate higher than 2% has longstanding support among many. There is a chance the US could achieve a "soft landing," if so, this should be good for all markets. If we see a "harder landing," one would think this should be good for munis. Either way, I suspect, as mentioned, we will hold here for a while, despite a possible raise over the next two months.
- Nuveen stated Friday that they suggest investors buy extended-duration MUNIs, which offer value compared to sitting in cash. They like longer-dated paper because they feel we are at the top of the rate cycle. We continue to buy ~15-year paper - focusing on YTW while trying to keep the 4% coupons < 100.
- US business activity expanded in early June at the slowest pace in three months, held back by a deeper factory contraction. The report continues to offer mixed news on inflation. Factory input pricing shrank the most in over three years. The FED will continue to use this data point to assess how to address the rates in their summer meeting.
- Data in the coming weeks should suggest more signs of cooling. Jobless claims continue to tick up, and as the labor market softens, I suspect we will see home sales flat. The May Personal Consumption Expenditures (PCE) report will likely show overall super-core inflation slowing, which means we could see another pause in the summer; I believe we will see one more hike eventually. However, that should be "it" for a while.
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