- Connecticut is collecting a duo of fiscal wins this week with two upgrades from both Moody’s and Fitch. Both of the credit rating agencies cited improvements in the state’s budget management practices. Overall, this should help the bonds, although we have been bullish on Connecticut for quite some time. If you own Connecticut debt, this is a positive for you.
- If you own Chicago BOE’s, there is a chance some will be called, as the system is missing a 650MM issue today to add working capital and call a small portion of the existing debt. I would suspect that if this round goes well in pricing, we will see additional issues priced as we move through the balance of the year.
- Traders were bracing for the CPI numbers released today, as we know they came as expected at 2.9%. This is good news for both equities and bonds, as yields continue to fall across all asset curves, positioning for a rate cut next week. As I type this, the 10T is now below 4% and the MUNI market has dropped ~25bps since last Friday, a big move in a short period of time.
- Jobs continue to cool, with the CPI numbers out today, traders are now pricing in three cuts for the balance of this year. Inflation is relatively calm, which will give the FED the flexibility to focus more on stemming the ongoing weakness in the labor markets. Many, including us, are expecting a 25bps cut next week. The other question is how many and what the depth of the cuts will be.
- The weaker the labor market becomes, the less inflation matters; this is especially true this week, given the downward revisions we have seen in economic numbers. I must admit, it is surprising to see how quickly the narrative has shifted in the street – just two months ago, most were only expecting one cut this year, now three.
- As we have seen, US wholesale inflation unexpectedly declined in August for the first time in four months – the PPI decreased 0.1% from the previous month and rose 2.6% from the same period a year earlier. This report suggests that companies refrained from outsize price increases last month, despite higher costs resulting from the Tariffs. I have attached a graph as well.
- As a compliment to the above, retailers have been eating tariff costs in recent months, but some firms have indicated they have held the line as long as they could, and they could start to increase pricing next month. I suspect we will see slight price adjustments; however, I do not think those adjustments will impact inflation much or change the course of the FED moves.
- The street is “banking” on a rate cut next week, as the FED will make an effort to counter a rapid slowdown in the labor market. As we have reported, Powell “cautiously” opened the door to the cut at the Jackson Hole meeting, and more recent data continues to show a slowdown in hiring.
- San Francisco’s Bay Area Rapid Transit system is drawing down a FED loan as the system continues to hunt for much-needed cash. BART approved a $ 395 million cash draw from its existing loan to reimburse prior railcar expenses and shore up liquidity through 2026. If you own debt in this structure, it’s best to speak with us.
- Jaime Dimon indicated that the revisions made by the Bureau of Labor Statistics are “further evidence” that the economy is battling a slowdown. He did not comment, however, on whether we are on the way to a recession.
- Yields continue to fall on fixed-income assets. The question now is, will the cut be 25 or 50? I personally think we will see a 25bps cut, but no one really knows at this point. What will be interesting is the comments after the cut, and any indications of either two or one more cut for the balance of this year.
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Yield to call (YTC) is not indicative of total return; this yield is valid only if the security is called. Bonds may or may not be called, or be callable on multiple dates or, in other cases, called any date following the first call date, so yield to call is based on the earliest stated call date. Discounted bonds may be subject to capital gains tax. Bonds may be subject to OID (Original Issue Discount). Prices and availability may change at anytime without notice.
Do not buy bonds based on the Yield to Call (YTC). Insured bonds are issued for timely payment of principal and interest only. Insured bonds do not cover potential market loss and are subject to the claims paying ability of the insurance company.
Non-rated (NR), With-Drawn (WR), or below investment grade bonds, lower rated bonds, carry a greater potential risk of default & should be considered by sophisticated investors only.
This document is for informational purposes only and does not replace or serve as a substitute for your official monthly statement generated by NFS. Please refer to your official statement for accurate and comprehensive account details.
Bonds may be subject to capital gains tax. This summary is for informational purposes only and is not an offer or solicitation for the purchase or sale of any security or a recommendation or endorsement of any security or issuer. NewEdge Securities, LLC. and DRL Group make no representation about the accuracy, completeness, or timeliness of this information. Bonds could also be subject to the DeMinimis Rule, please consult with your tax advisor for further clarification.
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