- Before the selloff this week, the volume of new state and local government bond sales slowed from last year. Year to date, new issuance is up less than 3%. This slowdown reflects the rise in rates and the economic uncertainty cast by the Delta Variant, and a decline in taxable bond sales. The Biden infrastructure bill is another wildcard. There is a lot of uncertainty in the market right now, which will pause the investment community. I suspect yields will recover over the next 30 days as we move and solve the debt ceiling issue.
- There was an article on the MTA's running on "borrowed" time, facing budget and revenue challenges as FED aid will tap out in 2025. MTA has indicated that they need to bring the riders back to recover. I suspect this will happen, and MTA will receive additional funds from the government under the current administration.
- Democrats remain deeply divided late Monday as they struggled to close an intra-party split that threatens this week to blow up Biden's economic agenda. This vote deals with the $550B infrastructure bill; Congress is trying to get this deal done before they move onto the larger bill – while also dealing with the government shutdown that is looming for next month. However, I suspect that the $550B bill will get done but might take more time than initially thought.
- Crude moved above $80.00 a barrel on signs that demand is running ahead of supply while depleting inventories. Oil's latest upswing has come with a flurry of bullish price predictions from banks and traders - as Americans hit the road in the Fall - I suspect this trend will continue.
- Visible supply is $16.6B, up from an average of $12.5B for the year. This figure is the highest since 6/9/21 and will put pressure on our market.
- Infrastructure bonds such as roads, bridges, and perhaps airports should benefit from the inflation issues we see now in the markets, and I think inflation will be the main talking point for everyone. Focusing on infrastructure bonds as a "safe trade" would be wise as they should hold up well despite rising interest rates due to stronger credits.
- According to the FED minutes, growth will rebound, and supply bottlenecks will ease next year. This statement indicates that inflation will converge close to the FED's target of 2% net year. Next week’s data releases will provide clues on these issues. The 3rd print of GDP will confirm that US consumers entered this year with a strong appetite to buy goods and services.
- CA will sell $1.8 billion High-Yield Tobacco Securities on 9/30 to refinance older debt. This deal is the largest taxable tobacco deal ever and the largest taxable deal since 2018. The state is pledging to cover the debt if the settlement revenue falls short, which provides additional security to the holders of the bonds.
David Loesch
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