- Large transportation systems in the US are struggling to retain cash flow. Many are pleading with Congress for FED funds to avoid deep service cuts and layoffs while warning that an economic comeback depends on mass transit. MTA's, and the like, will most likely receive help (MTA has already tapped the liquid facility) as we move through the 1st Q of 2021; the Biden/Yellen/Powell group will be very open to spending money on items such as this.
- Fund Flows continue to be heavy as investors added $1.37B to muni bonds funds in the week ended December 2. I suspect this trend will continue, and you will continue to see yields move down based on this.
- US officials indicated they would have enough COVID vaccine doses to let most Americans get inoculated by next summer while downplaying reports that they passed up a chance to secure more of Pfizer's drug. As we get closer to the spring of 2021, we will have a better picture.
- Benchmark 10-year paper for states: CA .87, FL .79, IL 3.27, NY .75, PA .97, and TX .76 all down ~5bps over the last week.
- Overall, MUNI's are moving due to optimism, confidence, vaccine news, FED backing, and a ton of cash in the system.
- Mnuchin made a surprise "re-entry" into talks on a 2020 relief package with $916B proposed that opened a new path for negotiations. The new plan includes $160B in aid for state and local authorities, which would directly positively impact our markets
- Fitch rating service cut NYC, and its outlook was revised to negative by S&P. The rating cut is on $38B of their GO debt; the move was to AA- from AA. This negative outlook means that NYC has a 1/3 chance the rating services will lower the current rating over the next two years. With the "meager rates" of employees returning to work in the city, the potential for long-term negative impact is higher than in most cities. NYC is facing a $3.8B budget deficit in the next fiscal year, and private employment is still 14% below the pre-pandemic levels. I am not concerned about NYC defaulting; however, with the credit ratings moving down while being placed on negative, I suspect you will see movement in the bonds.
- Visible supply begins the week at $13.3B, below the yearly average of $14.5B. The biggest sale this week is Puerto Rico, surprising they can bring items to the market during their restructuring. I expect the new issuance will be lower as we move into the balance of this year, creating a push down in our markets' yields.
- The striking deceleration in the November jobs report, which came out Friday, serves as a warning of a tough road ahead for the US economy. Service sector hiring showed a sharply negative response to the restrictions in place for retail and restaurants. Many anticipate a significant decline in payrolls in December, which should produce a flight to quality trade over the next three weeks. Overall deteriorating economic momentum is moving into 2021, and many do not see the labor market getting back to "normal" until 2022.
- Investors are back buying American airports betting that travel will rebound once the vaccine's widespread distribution is administered. Even junk-rated bonds tied to the airline industry have rallied, driving them to nearly a 5% return in November, the biggest gain since 2009. Many portfolio managers like the airport sector; with their strong financial positions, most will weather the storm.
David Loesch
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