- MUNI bond issuance started to recover in June, marking the first month in 2023 where new sales rose year-over-year. Long-term sales climbed 10% compared to 2022 to about $36B. Total long-term issuance last month reached the highest since August. However, over three years, overall issuance continues to wain due to higher rates and a lack of need for paper. I suspect issuers are waiting for rates to move down over the next few quarters before we start to see issuance return to "normal."
- MUNIs had a decent month in June, led by heavy cash and low supply. This past June was the best June performance since 2016, up from May's loss. I suspect we will see a muted performance in July as many are ready for a rate move in either July or August. I believe we are over the wide and large swings we saw in 2022 based on the 500bps rate move by the FED.
- US factory activity contracted for an 8th month in June, slipping to its weakest level in over three years as production, employment, and input pricing retreated. These data points will drive home that we will see one more hike; with the FED telegraphing, this should be "it" for the moves soon. Policymakers have focused on two more hikes this year; however, Wall Street believes there will be one, as discussed.
- The DRL Group has been buying high-grade IL paper for quite some time. IL being the lowest-rated state, we typically only stick with the IL State GOs, which are insured and well-capitalized. As of this month, IL has built up its rainy-day fund to a record $2B following a rebound in revenue ahead of a potential recession. The state will finish the fiscal year ending Friday with about $1.9B in its so-called budget stabilization fund, according to a statement from the state’s Governor.
- Yale New Haven Health System's credit rating dropped one notch to A+ by Fitch, showing that even the most prominent systems are not immune to the widespread challenges pressuring hospitals. Many hospitals are facing liquidity issues due to higher labor and overall costs facing their system. As previously discussed, we only buy this market area if they are insured or a credit like MD Anderson in Houston.
- President Biden's economic advisor indicated the inflation numbers should improve through the second half of this year, and there is a reasonable chance we are on pace to get to 2% by the November 2024 election. As we know, this is the FED's target rate; I have been leery of this rate for some time; however, if we continue to see the economic numbers trend down, there is always a chance.
- Some economists say May's PCE numbers should be softer than April's, boosting market expectations that the FED will only hike once more this year. At the same time, job reports and personal spending are flat to somewhat strong, so many continue to believe we will see one more hike this year, and I am in that camp. Whatever happens, we are much closer to the end of the cycle than the beginning; this should be good for the high-grade fixed-income markets.
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David Loesch
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