Broker Check

Market News & Commentary - From The Desk Of David Loesch 11.04.2021

November 03, 2021
Share |
  • Voters across the US will decide on an estimated $27B of bonds during this week's elections. The amount is about half of what voters faced last year; this year's total is the lowest since 2017 and slightly below the past decade's average. As discussed, munis will be scarce, and municipalities will not need to "issue" paper due to governmental funding. We are seeing this in visible supply as we move into 2022. The DRL Group believes this trend will continue, and supply should diminish as we move into the balance of this year, which should help pricing.
  • Overall, State and Local government payrolls have not recovered to pre-pandemic levels despite an influx of federal stimulus money. This cautious approach should "weigh" on the minds of the FOMC as they make their decisions this week. I suspect we will see tapering; however, the "problems" still exist, and many know this. The DRL Group expects the market to react calmly to the tapering as expected.
  • Based on supply constraints and spending, some call for two hikes (.25 each) in 2022 and three in 2023. I believe the FED will notify the markets of this timing (not specifically with dates but hinting at a rate increase), and they will be ready for it. MUNI's will be steady as we move into this week and next and most likely adjust based on the FOMC news. I expect yields to hit 1.65% over the next ten business days; however, I do not see yields moving much above 1.75% post the 12/1.
  • Biden's economic plan appears on track for passage by Congress even as Democrats still have lingering issues regarding changes in federal deductions for state and local taxes, paid family leave, and immigration. This package will get done, and monies will go out to those that Congress is targeting, and the $550B will hit the municipalities' coffers over the next several months.
  • Visible supply begins the week and month at $9.4B, well below the average of $11.4B. This point is an overall great thing for pricing and supply, and I suspect this will continue as we move through November and into December.
  • A key debt refinancing tool for state and local government and the Build America Bonds (BABS) debt programs are the MUNI bond provisions, excised from the Build Back Better Plan. This fact is a huge issue for the MUNI markets and the underwriting community; however, it will help the overall pricing of MUNI’s with less product in the street. The new BAB's would have allowed the municipalities to finance much-needed infrastructure in 2022 and 2023. With these provisions gone, this will result in less product for underwriters to work with going forward and should help our markets from a pricing standpoint due to a lack of supply.
  • State tax collections have increased significantly. NY State has been the latest to report a surge in tax revenue by 20% in the 3rd Q compared to the same Q last year, higher than pre-pandemic levels. This point should help credits from an upgrade standpoint over time.
  • Yellen indicated that she is confident that lawmakers will get Biden's deal done. I think she will do all she can to push this bill through. I suspect that next on the agenda will be a tax increase to sustain the revenue for debt service.

 

 

David Loesch

dloesch@drlgroup.net

www.drlgroup.net

605-B Park Grove

Katy, TX 77450

866.664.4040 (toll-free)

281.398.8600 (direct)

281.398.8607 fax

 

This report has no regard to the specific investment objectives, financial situation, or needs of any particular recipient. This report is believed to be reliable based on information obtained from sources, 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 construed as a solicitation or an offer to buy or sell securities or related financial instruments. Opinions expressed herein are subject to change without notice, and the division, group, subsidiary, or affiliate of MACC. 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 investors' specific categories. MACC 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. Income from municipals may be subject to state and local taxes as well as 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. The non-rated (NR) bonds should be considered for investment by knowledgeable and sophisticated investors. Additional information will be made available upon request.

Securities are offered through Mid Atlantic Capital Corporation (MACC), a registered Broker-Dealer, Member FINRA/SIPC.

The DRL Group. is not a registered entity or a subsidiary or control affiliate of MACC.

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.

Reminder: Email sent through the Internet is not secure. Please do not use email to send us confidential information such as credit card numbers, change of address, PINs, passwords, or other important information. Do not email orders to buy or sell securities, transfer funds, or send time-sensitive instructions. We will not accept such orders or instructions. This email is not an official trade confirmation for transactions executed for your account. Your email message is not private in that it is subject to review by the firm, its officers, agents, and employees. Unless expressly stated in this email, nothing in this message should be construed as a digital or electronic signature.