- This year's breakdown of municipal underwritings: $325.8B of long-term bonds, $214.7B of "new money" (first time to market), and $48.4B has been solely for refunding. 2020 and 2021 were much different when the FED kept rates near zero. For example, in 2020, total issuance on long-term debt was $454.7B; new money accounted for $198.5B. What is this telling us? As rates move down throughout 2024, you should expect to see more deals come to the table. I suspect this will not impact the market too much; however, be prepared for "more" new issues in 2024 and, most likely, 2025.
- Tuesday of this week, PIMCO said (again) they have rarely seen such an attractive entry point for MUNIs as they see now. Right now, is the "prime time" to buy paper with yields where they are. I am unsure if we have seen a "peak" in yields, but I feel good about where we are now and do not think we will hit the 5% mark again on the 10-year T despite heavy issuance. We have been buyers (heavy) over the last five weeks…yes, we were a bit early; however, with the recent run-up in pricing, everything has dropped 10bps. We have been heavy buyers here, again 5% is the “magic” number we are seeing.
- US inflation broadly slowed in October, which is an encouraging sign for overall rates and shows progress for the FED in the long path to taming pricing pressure. With these numbers, this was the catalyst of the large rally we have seen in November, particularly over the last two business days. I suspect we will see a slight pullback as we have moved up in price fast; however, this might be the start of yields grinding lower through the balance of this year and into 2024.
- US state tax revenue is sliding broadly, raising the prospect of difficult budget decisions in the coming years for officials as they spend through the cash they amassed during the pandemic. Total state revenue sank for the 14th month on an inflation-adjusted basis, falling 5.60% from a year earlier. What does all this mean? Budgets will be tight in 2024. MUNIs should not be impacted; however, lower-rated states and municipalities could feel a negative impact from these cuts. Be aware of what you are buying.
- The MUNI bond tax exemption value for investors in the top bracket is at a two-decade high. Reviewing the taxable equivalent yields is essential to "gauge" MUNIs against other investments. Bank of America put a piece out to their contacts last week, stressing this issue.
- Voters across the US approved at least $27B bond deals on the ballot last week. Much of this is coming out of our home state of TX. With the surging population in TX, there is a need to increase infrastructure. Harris County alone approved a $2.5B bond issue for public health care as an example. The $27B is historically a bit low; however, much of this debt will be issued in early 2024, as I suspect most municipalities will want to wait until rates come down.
Bottom line - Yields are down ~15bps across the curve, quality remains strong and we have been buyers here. The FED is “telegraphing” they are close to being done, if so, expect yields to grind lower. We will be discussing this on our next Webinar in a couple of weeks, the invite went out this week.
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