- Historically, the cruelest month for MUNIs has been September due to issuance. Typically, issuing authorities hold back on issuing bonds in the summer and hit the market about two months later, typically in September.
- Municipalities plan to sell around $15B of bonds over the next 30 days, the most since mid-July. The summer is usually strong for MUNIs; you have a limited supply, and reinvestment is generally very high. The uptick in supply could challenge state and local debt recovery in the second half of 2022. We could see pricing pressure based on these issues.
- Buoyed by a historic influx of FED pandemic stimulus, the largest school districts in the US are spending more. On average, school district expenses rose 5.40% for fiscal 2023 from a year earlier. The gains follow a 10.8% increase between fiscal years 2021 and 2022. In total, districts plan to spend $134B in the upcoming school year, up from $126B. This will and has impacted our markets from an issuance and pricing point of view.
- The MUNI curve inverted Monday afternoon as short-term yields surged. AAA MUNI bonds maturing in three months saw yields climb 21 bps on Monday to 1.82%, which is more than the 4-year benchmark yield of 1.81%. As this is typed, the curve remains inverted while the shorter end of the curve is getting "hit" much harder than the longer end.
- The Governor of IL announced a $34.6B program to fix infrastructures like roads, bridges, transit, and airports over the next six years. This program, backed by the 2019 Rebuild IL capital program, will include $6.36B for highway reconstructions and preservation, $6.40B for bridge improvements, and other miscellaneous uses. Utilizing municipal bonds and Fed money issued during COVID will be the tools to complete the projects. As earlier indicated, IL was one of the only states which applied for FED money during the "Build Back Better Program" two years ago.
- As debt sales boom, the Texas Permanent School Fund Program (PSF) is nearing its capacity for the first time in more than a decade. The cap of $117.3 billion is rapidly approaching. The amount of bonds in the program reached $100.2 billion by the end of June, 85% of its limit. This point means school districts that rely on the extra backing to get top credit ratings may soon be unable to tap the program, thus, raising their cost to borrow in the $4 trillion municipal bond market. School districts would then need to rely upon their underlying credit rating, which could offset their ability to borrow. I suspect the cap will be increased based on rising property values and tax dollars as more and more businesses move into the state. This issue does not impact the existing PSF Insured paper in the street.
605-B Park Grove
Katy, TX 77450
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