Broker Check

Market News & Commentary - From The Desk Of David Loesch 07.27.2023

July 26, 2023


  • As expected, a report on 7/24 indicates that investors are piling back into MUNI bonds, both funds and individual bonds. The outflows that plagued us in 2022 have now reversed, and inflows total around $1B per week at the current rate. What does this mean? Munis are trading at a brisk pace; investors are looking for paper. These gains inflows will produce solid results for MUNIs for the second month in a row. Yields will be steady as we move into the rate cycle.
  • Based on the above point, DRL continues to buy 10–20-year paper with around a 5-year call, coupons > 4% with yields north of 4.25% AA rated. Muni paper has moved from around 4.50% to ~4.25% now. Should you wish to see dealer-side offerings, let us know.
  • Overall yields are trending down and should continue despite the rate move. We all know we are approaching the end of this cycle; although we do not see a "cut," we see paper trading up in price as investors continue to grow comfortable with where yields are and the low volatility FI offers.
  • Home prices are again on the rise after a brief dip last year. This increase complicates the FED's "target rate" as it counterbalances deflationary data. Demand for homes continues to outpace supply, despite the rapid cost of borrowing. In addition, “only 9% of all existing mortgages in the US were taken out with a rate of above 6%”, according to data from the Federal Housing Finance Agency and analyzed by Torsten Slok, chief economist of Apollo Global Management. This figure keeps added pressure on supply because current homeowners want to avoid taking on a higher rate when they take on their next mortgage. This point should not deter a FED pause in the last Q of this year.
  • US business activity expanded in July at the slowest rate in 5 months as services growth moderated. The gauge of future activity is also slipping, pointing to lower job numbers and a lower CPI number for August. I suspect it will take a while for the Job market to cool; however, we are seeing signs of this these past few months.
  • Fed rates of 5.25% are the strictest borrowing cost over two decades. I do not see cuts for quite some time.
  • As The DRL Group has been indicting to our clients, hospital credits are seeing added pressure and could spell trouble. Friday, Oppenheimer told their clients to take a more discerning approach when considering hospital bond investments. They suggested focusing on the provider's balance sheet strength and flexibility, favorable operations performance, and a sound geographical footprint. Examples of these types of credits would be systems like MD Anderson, TX Children's, and the like in Houston. Although these systems have a small footprint, they are well-capitalized and well-known in their field. Situations like this merit guidance from an experienced bond advisor to navigate and keep abreast of these critical changes.
  • While the COVID crisis may have receded, US nonprofit hospital credits continue to deteriorate in step with the above. Rating downgrades for hospitals continue to outpace upgrades in that sector. DRL continues to avoid many hospital issues based on the reasons above.


At The DRL Group, we specialize in helping high-net-worth investors maximize tax-free returns by proactively maintaining their custom bond portfolios through all market conditions.

We would love the opportunity to visit with you further. Please click here to schedule a call with one of our specialists or contact us at 281-398-8600.


David Loesch

605-B Park Grove

Katy, TX 77450

866.664.4040 (toll-free)

281.398.8600 (direct)


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