- Oppenheimer indicated to their clients that more issuers and investors are turning to MUNI insurance, which covers more than 50% of the new issue market. Bond insurance new issuance was lower during the first half of 2023, and many think this trend will reverse. In other words, underwriters will issue more insured paper as we move through the year. We continue to buy this type of product, insured paper currently trading >4.62% YTW if not higher.
- New US home construction dropped in August to the lowest level since June 2020. With rates where they are now, it is putting pressure on new home buyers and will add to the CPI numbers (bringing them down) over time with lower purchases.
- The FED confronts a familiar issue as it tries to pilot the economy into a rarely seen soft landing. I suspect we will see a "soft landing" and yields move down over time, but not until the end of this year. Should we see this “soft landing” we suspect MUNIs will eventually rally.
- The largest MUNI bond fund just saw the most significant weekly inflow in more than a year, and there are signs that demand is continuing, considering where yields are now. MUB (Index Fund) attracted about $920MM last week, the most since May 2022. This change is an encouraging sign, showing buyers in the street.
- The FOMCE updated forecasts for their benchmark interest rate due today, and a potential key factor is T Bills, as they are at risk for their third straight year of losses. Powell continues to downplay the importance of the dot plot projections; many (including me) expect them to hold steady rates.
- US holiday hiring for retailers is estimated to be the lowest since the financial crisis as the labor market cools and rates rise. Hiring is expected to add 410K workers in the 4th Q, the fewest since 2008.
- Household incomes fell in a third of all states nationwide last year, while just five saw median income levels improve. With the Auto Workers’ strike underway, one must consider how this will impact the jobs numbers as we move into October. The FED has been indicating they will need labor to come down.
Bottom line - yields are higher ~20 bps, in some cases higher. Values are down however if you own quality, your account will be OK. If you own lower credit qualities, you should consider re-evaluating your holdings here.
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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