- The chatter in the street focuses on whether the FED will change its rate direction thought process in 2024. There is a ton of news surrounding this and opinions; the consensus is the Fed will cut rates 250bps in 2024. I believe this is a "tall order," and I suspect we will see a 100-200bp cut in total. I have said before that typically, in an election year, rates get cut; I am not sure if that is politics or how things go; however, this is indeed a fact. The bottom line is that I suspect a rate cut and up to 200 bps, not less than 50bps, which is a wide range.
- The last rate hike was 7/26/23 (18 weeks ago), and historically, it has been rare for the central bank to hike rates again after such a lengthy pause. There have been five occasions since 1971 when the FED has done so; however, it most likely will not happen.
- MTA NY recently reported news of current budget gaps that could widen to $900MM in 2026. This news comes from a non-profit think tank; however, they are typically right (Citizens for Budget Commission). MTA has indicated cost-saving measures to combat their issues. We have been trading MTAs for about three years since COVID. I never thought this credit would file BK, as it is too big to fail; however, they may get cheap over time, which should be a good buy.
- We have discussed "recession" occasionally; 16 states contracted in their overall economy in the last three months through October. Many states have been contracting since May. Interestingly, not much has been reported here, as this would signify a recession. States that contracted were AL, AK, AZ, IL, IA, ME, MA, MT, MI, MO, NJ, NY, OK, WV and WI.
- There has been an average drop of 63bps across the curve, longer-dated a bit less. However, compared to 1/2023, yields remain high, and I suspect we will continue to see buying in our markets as we move into the holiday season. We expect heavy new issuance this week through mid-December as visible supply comes in at $9.50B, right at the average for the year.
- Fund flows have reversed as investors added $292MM to MUNI bond funds during the week ending 12/22/23. I suspect we will also continue to see this type of activity over the next few weeks as yield-hungry buyers are getting FOMO.
- Markets are priced for a soft landing; some indicate they are in for a negative or surprise. Bloomberg published over the weekend that we will see a "harder" landing than people suggest or anticipate. Attributes would be longer-lasting unemployment, falling real personal income, slower credit demand, and extended manufacturing downturn, leading to a harder landing "per Bloomberg." I think we will see more of a "softish" landing than popular opinion. Either way, in any case, yields should move down.
Bottom-line: Yields are down 16 bps today, 11/29 alone. We have been buyers and continue to feel yields will grind lower. We could see a pullback, but overall, if you are a long-term holder, this is an excellent time to enter the market.
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