- Maryland’s credit rating was downgraded one level to Aa1 from Aaa by Moodys. This downgrade was a direct result of its exposure to shifting federal policies, according to a May 14 report. The state’s overall financial performance has lagged behind that of its top-rated peers, and this trend is expected to continue due to the state’s susceptibility to changes in federal policies and employment, Moody’s said in a statement. Overall, the state is still highly rated; however, be aware of the rating change, as this could impact the yields slightly on this structure.
- IL slashed its revenue forecast for the coming fiscal year by about 500MM, citing the “economic outlook and policies of the Trump administration.” We would expect more states to “pile” onto this cutting of revenue announcements as we move through the year. At the end of the day, the states should not have an issue as they have unlimited taxing authority. However, the question remains: how much taxing is too much?
- We saw T bills move up in yield on May 14 as traders further pared wagers on more than one FED cut by year-end. Many BDs indicate the FED will cut rates later than previously anticipated, while swap contracts ceased fully pricing in two .25% moves by year-end.
- US Producer Prices unexpectedly declined in April by .5%, the highest in 5 years, which is mainly due to a slump in margins. This decline suggests companies are absorbing some of the hit from higher tariffs rather than passing those increased costs to consumers. We are seeing businesses trying to figure out how to mitigate the impact of higher tariffs, some absorbing costs, some offering discounts, and others planning on raising pricing. Overall, this will impact equities and corporate paper more so than MUNIs; however, it is important to note how this might impact tax revenue over the next year.
- US inflation rose less than forecasted in April, with the core CPI increasing by .2% from March and 2.8% compared with April last year. The May 13 numbers showed a pullback in airfares, hotels, used cars, trucks, and apparel, while prices of appliances and furniture jumped. This should not change the decision of the FED to hold rates steady at the next meeting due to the uncertainty of how tariffs will impact the economy.
- As we expected, Republican lawmakers proposed increasing taxes on the richest US universities. Under the bill released May 12, private colleges and universities with at least 500 students and endowments exceeding 2MM per student would pay a rate of 21% on net investment income. This tax rate is up from 1.4%, which is where the rate stands now.
- As we have seen, traders have lowered their bets on the FED’s next meeting to cut rates. Currently, the street is pricing in two reductions for 2025 after the US and China agreed to cut tariffs and moderate their trade war. We have seen these numbers move drastically over the last three months, from 4 cuts to one, to now two. We are expecting to see two cuts this year unless we see a black swan event, with the first cut coming in the early Fall.
- Some indicate that the long-awaited House Bill regarding SALT could dull the allure of MUNIs in some states, such as NY, NJ, and CA. Filers are currently limited to deducting no more than 10K of their state and local taxes (SALT) on their federal forms. This, in theory, has helped “increase” demand for MUNIs for these high-tax states. The new bill allows the cap to be lifted to 30K (the bill has not been passed, to be clear), and going back to the thought, this might dull the appetite. We would disagree with this notion; if you are in a top Federal Bracket regardless of SALT or the state you reside in, MUNIs will continue to remain attractive for a specific allocation in the asset basket.
- For the year, rating downgrades on MUNIs have outpaced upgrades. For the week ending May 8, downgrades totaled 7.1B, outpacing upgrades and positive outlooks of 5.7B. The largest downgrade was on Novant Health, impacting 2.46B of debt, while the second was Sutter Health Obligated Group, impacting 2.15B of debt.
Securities offered through NewEdge Securities, LLC, member FINRA and SIPC. The DRL Group is not a subsidiary or control affiliate of NewEdge Securities, LLC. NewEdge Securities, LLC. has no affiliation to BondDesk Trading LLC or BondTrader Pro, or Tradeweb Direct, Bondpoint, TMC, Market Axess or any ECN.
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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