- The FED indicated the US economy grew only slightly through late November, with businesses reporting that high inflation and rising rates clouded their view of the economic outlook. Per the FED, economic activity was about flat or up slightly since the previous report, prompting some to think we see a 50bps rate move this month. Should this be the case, I suspect the rally will continue, as many will think we are close to the end of this cycle.
- If you recall, during the Trump administration, monies were sent to states and some municipalities for "help," but only MTA and the State of IL took this money. As of yesterday, the IL governor announced an agreement to pay off the remaining $1.36B balance to the government, leaving only MTA owing money. This statement is a significant win for the states. While only one state took the money, it is good to see IL come back from the brink of disaster. The DRL has been a buyer of this paper all along. I suspect this will not warrant an upgrade; however, the street will take notice.
- MTA will need to raise fares or reduce services on subways and all other transportation in NY because the agency's current financial plans are insufficient to close long-term budget gaps. I suspect no one will want to see steep fare hikes or service cuts, and it is unclear how MTA will address this. MTA suggested it can reduce budget gaps by paying off debt early. However, with rates where they are currently, I wonder if this is going to happen. I and others do not expect a downgrade on the bonds; however, this is something to watch over the next few months.
- US consumer confidence fell in November to a 4-month low amid the double blow of persistent inflation and rising rates. This point will be taken into consideration as we near the rate moves for December. I suspect we will see a max increase of 75bps and perhaps 50bps later in December. Powell indicated "reduced hikes ahead" in his last statement. With the run-up in MUNI's, and should we see a lower rate hike, I suspect we will see further gains through December on the MUNI asset class.
- The Texas Permanent University Fund (PSF), a triple-rated TX program that guarantees public school bonds, is nearing capacity for insuring additional Muni bonds, as stated in their 10/31 financial documents. The projected available capacity at the end of October 2022 was $653MM. The Texas Permanent School Fund administers the program, and its limit is set by Federal law. While the cap limits new issues from being PSF insured once reached, it should not be much of a problem initially, as several million dollars worth of bonds will mature or be called in the first quarter of 2023.
- Chicago is postponing a bond sale planned for December 2022 due to rates. These will be senior lien tax securitization bonds for public improvements and should sell well in the marketplace. The city will push this deal to January 18-19 as some believe rates will continue to "tickle down," The city will gain better pricing as we cross into the new year.
- There is a lot of talk about new bond issuance for 2023, which is off about 20% for the year. Many, including me, expect it will drop to a similar magnitude in 2023, the deepest slump in 20 years. States and local municipalities will sell around $350B of bonds this year. This total was issued in 2011 when the MUNI market was 25% smaller than it is today.
605-B Park Grove
Katy, TX 77450
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