- High-net-worth investors with a budget of $250,000 or more dedicated to municipal bonds are growing interested in customizing their portfolios. To achieve this, they are turning to a financial product known as separately managed accounts, which allows them to hand-pick individual securities with the guidance of a professional advisor. According to a survey conducted by JPMorgan Chase & Co. across 74 firms, the total assets under management for these accounts, invested in municipal bonds, reached $987 billion in the first quarter. In comparison, mutual funds held approximately $769.7 billion of municipals during the same period, according to data from the Federal Reserve. This news is excellent for our sector.
- Federal Reserve policymakers are prepared to raise interest rates this month and are open to further increases later in the year. Although they were encouraged by a decrease in price pressures last month, they are not ready to declare an end to their efforts in curbing inflation, which has persistently surprised them with its endurance. Their caution is partly driven by the strong desire to avoid repeating the mistake of the 1970s when the Fed prematurely eased its inflation-containment measures, only to witness a resurgence of double-digit price increases later. We should see a rate increase this month and be on a raise/ pause cycle monthly for the rest of the year. I do not anticipate that the Fed will come out with a hard pause for X period and cut their options down in this economy.
- Last week, Texas Legislators adopted measures to lower school property tax rates for all homeowners and business properties. In addition, Senate Bill 2 (SB2) raises the residential homestead exemption from $40,000 to $100,000. Seniors over 65 and disabled homeowners will see the exemption rise to $110,000. SB2 also includes a temporary provision for non-homestead residential and commercial properties that limits the annual appraisal increases of tax bills to no more than 20% on property worth $5k or less. Governor Abbot has signed the $18 billion tax-cut deal, which will now be on the ballot in November for final approval. Upon passing, the district tax rate compression will apply retroactively to the 2023 tax year. A second bill, SB3, provides franchise tax relief for small business owners. These bills represent the most significant tax cut in Texas history and will help the Texas economy as more cash will be available to invest or spend.
- There is some positive development regarding Puerto Rico's bankrupt power utility and its debt-cutting efforts. US District Court Judge Laura Taylor Swain has granted a request to extend the deadline for an amended debt-adjustment proposal by two weeks. The utility's bondholders and the financial oversight board of Puerto Rico have been actively negotiating over the past three weeks, and the progress made in the talks justifies the postponement. This news suggests hope for a debt-cutting deal between the power utility and its bondholders.
- According to a report by S&P Global Ratings on tax-supported debt, states in the fiscal year 2022 showed a slowdown in new borrowing. This change was attributed to two main factors: the Federal Reserve raising interest rates and the federal government distributing pandemic relief funds. In response to the uncertainties caused by the pandemic in 2020, states increased their borrowing by over 7% while curbing spending. They were preparing for the potential impact of widespread shutdowns on tax revenue. However, the outcome differed; many states experienced a tax revenue boost as people stayed home and turned to online shopping, while the stock market performed well. This point led to increased income tax collections. In 2021, Congress passed the American Rescue Plan and the Infrastructure Investment and Jobs Act, which injected cash into the economy. S&P Global Ratings expects these funds to continue flowing into the economy over the next few years. Overall, improved tax revenue and the influx of federal relief funds prompted states to slow down their borrowing in the fiscal year 2022. The report by S&P Global Ratings highlights this trend and the changing financial landscape for states during the pandemic.
- The latest data from the Bureau of Labor Statistics indicates that US producer prices saw a minimal increase in June compared to the previous year. The change marked the slowest pace of growth in nearly three years, reflecting a continued deceleration in inflationary pressures within the production pipeline. The producer price index (PPI) for final demand rose by only 0.1% year-over-year. On a monthly basis, the PPI also increased by 0.1%, following a decline in the previous month. When excluding the volatile food and energy components, known as the core PPI, there was also a marginal increase from May, with a 2.4% rise compared to the previous year. However, this annual gain is the smallest since January 2021. These figures suggest a slowdown in price growth for goods and services at the producer level. It indicates that inflationary pressures have eased, at least in the production stage, and price increases have moderated. Notably, these are producer and not consumer prices, which are more directly related to the prices consumers pay for goods and services.
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