- New York City's Transitional Finance Authority is selling $1 billion in bonds next week, joining an elite list of municipal bond issuers who have sold deals this size. I continue to hear talk about our market like this "A reluctance by states and cities to borrow is making municipal debt a star performer among credit assets and driving investors to scour the market for bonds."
- Fewer municipal bonds will mature and or get called the rest of the year, according to data compiled by Bloomberg. In June, July, and August, $122 billion matured, and another $25 billion was called. Combined, $147 billion easily outweighed the $110.5 billion new issues sold. For September through December, $86.9 billion worth of bonds will mature. Throw another $20 billion of calls over those months, means around $106.9 billion will be looking for a new home.
- The power utility of Puerto Rico, currently undergoing bankruptcy, has reportedly reached a preliminary agreement with a significant portion of its bondholders. This update comes from a federal oversight board. The power utility has also been granted an extra week to finalize a potential deal to reduce its substantial debt of nearly $9 billion—great news for Puerto Rico.
- The unassuming municipal bond market is a viable option for investors searching for returns comparable to those offered by stocks over the long term. A prime illustration of this is the recent $1 billion issuance by New York City. Despite its seemingly moderate nature, the city, rated AA by two prominent credit rating agencies, successfully issued 30-year bonds with a yield of 4.35%. While this figure might appear unremarkable, factoring in tax adjustments reveals that affluent New Yorkers who invested in these securities reaped yields akin to those achieved through 10% taxable debt.
- Primary market: Visible supply began the week at $10.4 billion, just above its 2023 average of $9.1 billion. The most significant underwritings on the calendar include a $933.8 million issue for DFW International Airport, TX, and a $728.2 million deal for the University of California.
- US colleges ' endowments are recovering after experiencing their most substantial losses since the Great Recession due to ramifications from the COVID pandemic. However, the increased expenses for constructing buildings, paying salaries, and providing financial aid can erode these gains. Over the 12 months ending in June, endowments achieved a median return of 8.7% before factoring in fees—this point in contrast to the 10.2% loss they faced, marking the most significant decline since 2009. To keep up with inflation and expenditure, colleges required an annual growth of 8.2% last year, as the National Association of College and University Business Officers stated. This figure has risen from 7% in 2019. We are still seeing the aftermath of COVID for colleges, but this might be going in the right direction. We have been cautious with college bonds since 2020, and I think it will take a while to gain trust back from investors.
- Washington, DC, has now become part of the group of major urban centers where inflation has fallen below the national target set by the Federal Reserve, which stands at 2%. Over the 12 months ending in July, prices in the Washington metropolitan area increased by 1.8%, marking the smallest rise since January 2021. This is a significant relief compared to the high of 7.5% experienced last year. The Bureau of Labor Statistics data reveals that food, energy, and housing costs all showed moderation. Minneapolis, the first metropolitan region to go below the 2% threshold this year, further declined to just 1% last month. Houston also experienced a drop below the Federal Reserve's target this year. This fact is so interesting, I continue to see cities below the inflation target for the FED, but it does not feel like that.
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.
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David Loesch
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Katy, TX 77450
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