- This week will be important, as we will see if yields and pricing hold following the past two moves of -11bps and -13bps on the yields. This rally came after softer-than-expected payroll data fueled bets that the FED is done raising rates. With the 10-year T trading around 4.60% today, up around 3bps, it will be interesting to see how the market reacts. We are not calling for a "top in yields" here; however, should we see a couple of weeks of strength, many will start to feel good about where yields are.
- CITI is considering closing its MUNI bond trading and origination business, which for decades was a powerhouse in the $4 trillion MUNI market. The reason is that profits have been faltering over the past few years. The CEO could still hold onto this business, but it will be an interesting issue to watch in the future. This issue further proves that MUNI professionals are becoming few and far between.
- FED Atlanta president, who has been among the most dovish FED policymakers, indicated to the committee they should "watch" the economy and be patient when it comes to future interest rate moves. He, along with others, suggests continuing to pause as it takes time to let these rate moves "soak into" the economy. The DRL Group, along with others, has been indicating this for a while. Powell and company should consider letting the rates "soak into the economy" before moving further.
- Many view the strength in recent household spending as funded mainly by a drawdown of savings or borrowing. If banks tighten credit over the next few months, we should expect consumption to slow sharply in the 4Q despite holiday spending. If this point proves accurate, we should expect the FED to speak to this as we move through further meetings. Bottom line, if credit tightening is coming, I suspect we will see spending slow down significantly.
- Last week, we had a massive turnaround in MUNI pricing as traders pulled back on bets that the FED will raise rates again in the coming months. As we have been discussing with our clients and prospects, when the FED indicates they will "hold rates steady," yields will move down; this is exactly what is happening now. MUNI yields fell at least 11bps, and this is the first time since August that yields have dropped this far this fast.
- Bloomberg is calling for hiring to be slowed to 157K in October. If recessions always begin with a nonlinear increase in the unemployment rate, then the labor market is close to that jumping-off point now. September's numbers surprised everyone, leading everyone to conclude a recession is off the table; however, this might be a poor ruling, and a recession should not be ruled out with just one number. To be clear, I am not hoping for a recession; however, many predict we will see one.
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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.
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