- As discussed in the past, most cities are pouring their FED infrastructure spending into fixing roads and bridges, prioritizing motor vehicle, airport, and railway projects. About 4 out of 5 cities said they plan to spend their money on local roads, with 58% prioritizing road safety. A little more than a third will spend on broadband, while about 2% indicated they would put the funds towards public transportation. I find all this interesting, as it identifies what areas need the most help across the states. MUNIs are the backbone of our country; it is a vital financing tool and an important asset class. Of the $1.9 Trillion Infrastructure Bill, $350B was allocated to cities. This Bill is one of the reasons we are seeing the surge in inflation over the past six months.
- As with the above point, MUNI’s credits at this time are solid, and yields are higher based on the last six months, which could result in a historic buying opportunity. Over the past 25+ years, I've been in the business, I have seen very few “historic” buying opportunities. This year could be one of those. We understand statements look rough, and it is hard to buy into this market; however, this might be the opportune time from a long-term perspective. The DRL Group continues to purchase high-grade credits, focusing on specific insurance companies while also considering the municipality's underlying credit. Buying insured, long, Non-AMT, well north of 4% is very attractive. On the shorter end of the curve, we are buying 5-10 year paper at yields 150bps higher than five months ago.
- Goldman Sachs has come out and indicated they are "moderately bullish" on MUNIs after the decline in pricing. The firm's co-head of MUNIs says the FED's aggressive policy tightening campaign has been a boon for investors who had difficulty justifying these investments when rates were low. The benchmark MUNI yields have risen more than 150-225 bps since the start of the year, luring buyers back into this asset class. Now is an excellent opportunity to own fixed income and put funds to work. The DRL Group has been reporting “calls” like this on the MUNI markets for over a month now. It is not just our firm that is buying; many others are joining this “choir” as well. Don't hesitate to contact us if you have questions about the MUNIs in your portfolio.
- Investors also appear optimistic about MUNIs, adding $206MM to MUNI Bond Funds during the week ending 7/13. This change is the 3rd weekly inflow compared to billions of dollars of outflows over the past half of the year. It will be interesting to view these same numbers after the FOMC meeting.
- Massachusetts is postponing a $2.7B bond sale as they wait for bond yields to move back down. This postponement is another sign others are anticipating the markets are nearing their pricing lows, betting on yields to move down. I expect higher-rated states to follow this lead as we move through the year's balance.
- US wholesale and business prices jumped in June more than forecast, though signs of cooling inflationary pressures began to emerge that may eventually spell relief for consumers. It will be interesting to see how the FED addresses this information.
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