Broker Check

Market News & Commentary - From The Desk Of David Loesch 10.26.2023

October 25, 2023

  • 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.

David Loesch

605-B Park Grove

Katy, TX 77450

866.664.4040 (toll-free)

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