- Muni supply will continue to dwindle over the next few weeks, which could deliver a bounce to our markets due to the lack of paper. This decrease will be the lowest in supply since February this year. The visible supply for the next 30 days will average $5.9B, which will prove to be one of the slowest paces for the year; last year’s average was $11B. We view this as an issue that could push rates down over the next couple of months.
- Oregon’s 3rd largest city is about to lose its only hospital, illustrating the fallout from what we have seen from COVID and poor management in that sector. The operator, Peace Health, indicated it will shut its doors due to a lack of operating profit. Sadly, this hospital served primary college students, and it will leave them without an emergency room in town. This situation is another example of "healthcare" paper continuing to falter over time, and we choose not to trade the NON-insured paper of this structure.
- T bills seem to be "stuck" here in a bearish move in a bullish world. I suspect we will continue to see these levels for a while, at least through the middle of September. Fund flows are steady despite the bond rout, which will continue through the balance of this year. The “bull case” obviously is that yields are higher than they have been in a very long time.
- The “bear case” for T bills? The 10T bill has surged 111 BPS from its low in 2023 of 3.25% in early April to last week's high. I suspect this will be somewhat of a high right here, as a stunning economic surge in the US is not likely, jobs are slowing, savings are low, and so on. As mentioned on our recent webinars, we see the 10T trading around the 3.85%-4.20% range, and we know that is widespread. MUNIs always lag markets; yields seem to be "trying" to go lower.
- Powell indicated last week that the FED is prepared to raise rates further, if needed, to combat inflation. Powell was set on the 2% target rate while exhibiting that the current inflation levels are "too high."I suspect we will start to see numbers come down, which should help, but we will need to see numbers "stay down" for it to take effect. As many have said, and almost a cliché now, the FED is "data dependent"; they will rely on the "current data" to decide.
- Former T Secretary Lawrence Summers said the FED would need to raise rates at least once more and cautioned that insufficient attention is being paid to the effects of the US fiscal deficits. Summers indicated there is "not much slowing" in the pipeline at this point, and this should be nothing new as we have all discussed one more hike.
- As we know, visible supply remains low and finishes the week at $5.1B, well below the average of $ 9.1 B for the year. This trend will continue as we move into the 4th Q, and I suspect it will help pricing. Bottom line - low supply, good credits - we are buying 4.50%+ insured.
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