- Muni bond issuance has been off by around 10% for much of this year. In 2022, long-term sales came in at $361.2B; in 2023, sales are currently at $291.4B. I suspect we will see a heavy calendar for the next 15 days. NY indicated yesterday they were going to increase volume for the balance of this year. As mentioned, we will need to see issuance come down to help yields stabilize. We see paper being issued at a 5.25%+ on the long end, while the shorter paper is crossing the 4% mark.
- On 10/23, the 10-yr T briefly climbed to over 5%, then retreated 15bps to 4.85%. This change was a 16-year high. Right now, no one knows where yields will peak. As mentioned, 5% seems like a "barrier"; however, if broken, we could see 5.50% quickly. I personally think there is a 5.15% mark" line in the sand," should we cross that on the 10-yr T, we could see yields move up sharply. MUNIs are holding here at around 5%; we are seeing buyers coming into the market both on the short and long end.
- Last year, when the economy exceeded everyone's expectations, the federal deficit almost doubled, spotlighting our dire fiscal issues. The government ran a $2.02 Trillion deficit for the fiscal year ending September after adjustments to remove the impact of Biden's student loan program. Overall, in point two above, it will be difficult for the T bills to climb much higher due to the interest rate expense based on the debt service. It is hard to comprehend how much money our government has spent now and even more challenging to calculate why we have such a huge deficit.
- Powell's latest remarks indicate that the economy is still strong, and the FED will continue to monitor the situation. With the 10-yr T hitting 5% this week, the T bills might be doing the work for Powell. Many indicate the more immediate relevance to yields is the jobs numbers and if they are stronger than the FED Forecasts. I suspect the FED will be cautious as they move into the last Q of this year, with no hikes and most likely none in the 1st Q of 2024 either.
- Visible supply will begin the week at $10.5B, slightly higher than the $9.5B average. As indicated, the new issues must slow down before seeing any market improvement. With yields on longer-dated paper on the latest deals coming to market in the mid-5%, this will keep pressure on the items in the secondary market.
- Powell delivered his remarks yesterday before the next policy meeting, highlighting a busy month for FI traders. The FED indicated they will likely hold rates steady at its next meeting and through the end of the year. As for next year, Powell indicated he "cannot tell what is in store." However, many are leaning towards a cut late next year. A "range of uncertainties" will cloud these types of decisions, and I suspect that with the labor markets' complications, Powell will stay quiet on any cuts until they feel they are needed. We are taking the stance of "we will see." I am not convinced yet of a rate cut; however, it is growing more towards a possibility late in 2024.
Bottom line - yields up 20bps, credits are strong, and flow is heavy. The short end of the curve is trading around 4.95%, and the long end is about 5.125%. We are currently buying both to hedge. We are focusing on our current client base, showing them the best we buy. If you are not seeing paper, not seeing these yields, or not getting honest feedback, give us a call.
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.
We would love the opportunity to visit with you further. Please click here to schedule a call with one of our specialists or contact us at 281-398-8600.
605-B Park Grove
Katy, TX 77450
New Edge Securities, Inc. has no affiliation with Bond Desk Trading LLC, Bond Trader Pro, Tradeweb Direct, Bondpoint, TMC, or any other ECN. Yield to call (YTC) does not indicate total return; this yield is valid only if the security is called. Bonds may or may not be called or be callable on multiple dates or, in other cases, called on any date following the first call date, so yield to call is based on the earliest stated call date. Discounted bonds may be subject to capital gains tax. Bonds may be subject to OID (Original Issue Discount). Prices and availability may change at any time without notice. Do not buy discount bonds based on the Yield to Call (YTC). Insured bonds are issued for timely payment of principal and interest only. Insured bonds do not cover potential market loss and are subject to the insurance company's claims-paying ability. Non-rated (NR), With-Drawn (WR), or below investment grade bonds, lower-rated bonds carry a greater potential risk of default & should be considered by sophisticated investors only. Bonds may be subject to capital gains tax. This summary is for informational purposes only and is not an offer or solicitation for the purchase or sale of any security or a recommendation or endorsement of any security or issuer. New Edge Securities, Inc. and DRL Group make no representation about the accuracy, completeness, or timeliness of this information. Bonds could also be subject to the DeMinimis Rule; please consult your tax advisor for further clarification.
As with any investment, the market value may vary during the period the investment is held. Subject to prior sale and market conditions. This offering is in limited quantity. Please take advantage of them before they are gone.
This report does not regard any particular recipient's specific investment objectives, financial situation, or needs. This report is based on information obtained from sources believed to be reliable, but no independent verification has been made, nor is its accuracy or completeness guaranteed. This report is published solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. Opinions expressed herein are subject to change without notice. The division, group, subsidiary, or affiliate of NewEdge Securities, Inc., is under no obligation to update or keep the information current. The securities described herein may not be eligible for sale in all jurisdictions or to specific categories of investors. NewEdge Securities, Inc. accepts no liability for any loss or damage of any kind arising out of the use of this report. Please contact your tax advisor regarding the suitability of tax-exempt investments in your portfolio. Municipal income may be subject to state and local taxes and the Alternative Minimum Tax. Corporate and Municipal securities are subject to gains/losses based on the level of interest rates, market conditions, and credit quality of the issuer. As with any security, there is an inherent market risk possibility as to principal if the security is not held to maturity. Non-rated bonds (NR) should only be considered for investment by knowledgeable and sophisticated investors. Additional information will be made available upon request.
Securities are offered through NewEdge Securities, Inc., a registered Broker-Dealer and member of FINRA/SIPC.
The DRL Group is not a registered entity, subsidiary, or control affiliate of NewEdge Securities, Inc.
Bonds are subject to market and interest rate risk if sold before maturity. Prices and availability may change at any time without notice. Insured bonds are subject to the claims-paying ability of the insurance company.
Bonds could also be subject to the De Minimis Rule; please consult your tax advisor for further clarification.
Reminder: E-mail sent through the Internet is not secure. Do not use e-mail to send us confidential information such as credit card numbers, change of address, PIN numbers, passwords, or other important information. Do not e-mail orders with time-sensitive instructions. This e-mail is not an official trade confirmation for transactions executed for your account. Your e-mail message is not private; it is subject to review by the firm, its officers, agents, and employees. Unless expressly stated in this e-mail, nothing in this message should be construed as a digital or electronic signature.
Call us at 281-398-8600 to invest in these or any of our other offerings today.