- Even after billions of dollars in stimulus cash has been available for various purposes, cracks are starting to form in America’s higher education system. Nowhere are these problems more prominent than in PA. This issue is relative to demographics. As the number of graduating seniors in America has risen over the past several years, certain areas are experiencing the opposite effect. For example, PA, TN & AL have experienced fewer enrollees in the college system, thereby putting a financial strain on several university systems.
- Many, including me, believe that the FED asset purchase program reduction will begin in November. This taper may eventually cause a modest yield increase as the T markets adjust to a new demand paradigm, with overseas bidders remaining essential participants. This Friday's payroll numbers could spur volatility as well. Yields might tick up based on the numbers - however, we do not think they will get "out of control."
- BOA indicated that the dollar’s recent grain could draw foreign investors to a corner of the MUNI bond markets. As government bond yields hold near zero globally, our state and local government debt offer a better chance for returns than G7 bonds. As we know, a rising dollar provides an added draw for foreign buyers; in addition to higher interest payments, they could get an extra gain when converting the income back into their home currencies. This fact could continue to help our markets as we move through the balance of the year. Many believe the dollar will continue to strengthen in the 4th
- Visible supply rose to $7.9B; however, it remains well below the average of $10.7B for the year. DRL has predicted this "supply shortage" all year. We continue to believe, "why would a municipality issue debt when they are receiving billions in FED money?" The answer is "they do not need to," thus the reduction in supply. Yields will stay steady or move down based on this theory.
- Some believe that the 10-year T will be capped for the remainder of the year at no more than 1.77%, while most think we will hold around the 1.20-1.30%. With Powell's address at Jackson Hole, tapering will be on the horizon; however, this will not impact our markets. I suspect we will see our levels steady to slightly lower in yield. With the lack of product flow and the heavy cash, demand should remain/become strong, keeping yields low well into 2022.
- Citigroup announced that investors would receive tax-exempt bond payments in September in amounts exceeding the volume of new debt sales. They estimate that state and local governments will sell $31.5 B in September. Investors will receive $26.9B from maturing bonds and early redemptions and another $8B in interest payments. This excess cash and short supply will help our markets while most likely pushing yields lower.
- S&P commented on how Louisiana municipal issuers with lower reserves and less liquidly will recover much slower from Hurricane IDA. They expect it to take years to get back to where they were before the storm. S&P will monitor this situation closely and address any changes over the upcoming weeks. If you are a buyer of this credit, we would suggest you exercise caution.
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