- States and municipalities have sold $364.3B in MUNIs this year, up 1% over the same period as last year. Only 87 underwriters managed at least one deal to date, down from 92. Our business is contracting from an underwriting standpoint, and I fully expect this to continue through 2024. I have watched this business for over 30 years, which has changed so much. This trend will continue through 2024, and the lack of issuance should lower yields.
- Some clients are "waiting" for an end-of-the-year sell-off for tax loss harvesting. This will likely not happen as tax loss selling has already happened. A new year traditionally rallies MUNIs as they tend to post solid gains in the first few months of the year. Demand from investors is typically robust, while issuance remains muted. The bottom line is we should see this rally continue through January.
- Two more FED officials have pushed back against the depth of rate cuts expected by markets next year. This point reinforces similar comments from other US Central Bank officials last week, and I do not see more than four cuts in 2024. The next move will likely be a rate cut, leading to a rally in most asset classes as we finish 2023.
- Historically, we have seen decreased rates and increased equity values in an election year; 2024 will likely remain the same. Overall, with rate cuts, lack of issuance, an election year, and barring anything like COVID, we should have a decent year in 2024.
- Visible supply began the week at $5.17B; as expected, issuance will be light this week and next. Some investors will be tax loss harvesting until year-end. We might see some volatility, but I doubt it due to current trading activity. We will see a decline in volume.
- With yields being cut slightly on Friday by 3bps, rates will stabilize here for the next week due to the timing of the holiday. I would not be surprised if we returned to 4% on the 10T soon. However, we do not see MUNIs moving much past 4.50% if they get there.
- In 30 years of doing this, I have only seen about a dozen monster rallies like we have seen these last two months. Bonds are “re-setting” to the “new normal” for yields. I do not foresee this continuing. However, I do see yields grinding lower over time. We have seen significant price declines over the last two years, and now we see the opposite.
- As yields tumble, I expect new issues to emerge more frequently in 2024. This part of the market has been quiet. With the sharp rally, state and local governments will seize this opportunity to issue debt at lower rates. This will not impact our markets; however, it will provide the street with more products.
- Investors pulled $524MM out of funds this past week for MUNIs again. 10T is down 31 bps over the last few weeks and at a 5-month low - keep in mind there is a ton of money in money markets, which should continue to push yields down
On behalf of all of us at The DRL Group, we wish you a very Happy Holiday Season and a healthy, prosperous New Year.
At The DRL Group, we specialize in helping high-net-worth investors maximize tax-free returns by proactively maintaining their custom bond portfolios through all market conditions.
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