Shifts in Federal Education Oversight and Mixed Fed Signals Shape Year-End MUNI Tone

• We have been discussing higher education as well as health care for quite a while.  The Trump administration said it will transfer some of the Education Department’s most extensive grant programs and major portions of several offices to other federal agencies, part of a broader plan to reduce the department’s authority significantly.  This plan will shift tens of billions of dollars in FED Funding away from the education department and give the Department of Labor, in particular, greater oversight of the Federal Education budget.  We have been cautious about this debt and have been following it closely to see how it will impact credits.  If you are buying this structure, we would encourage you to speak to us about the pros/cons.
• FED Reserve Bank of Richmond President Tom Barkin offered an optimistic inflation outlook, while suggesting the labor market may be weaker than the original data suggested.  We have seen this before from other FED presidents, and I suspect we will continue to see this type of news come out for the next couple of months.  Barkin highlighted data showing a drop in job growth and postings, while unemployment claims filings have remained mostly steady.  With the upcoming meeting early December by the FED, many are still betting on a .25% cut.
• US homebuilders barely rose this month as they struggled to lure cautious buyers off the sidelines with costly sales incentives.  Rates have come down as we have seen, but not enough to push buyers off the fence to buy homes. I suspect this will change over the next year; however, for now, it’s an important data point the FED will observe.
• The President spoke yesterday regarding the FED and, specifically, Powell, saying he has been “too late” in making decisions.  The President has turned his desire to bend the FED to his will into a drumbeat many are hearing, and is no longer satisfied with Powell and Cook.  We suspect that the President will continue this drumbeat until Powell steps down in May 2026; we do not see Powell removing himself before then.
• We are seeing Tax Exempt MM’s AUM climb as the short end of the curve cheapens.  While this is good, we also see it as temporary, as the longer end of the curve is becoming richer as buyers lock in yields at these levels.  Yields have been steady over the past few weeks, which has created an opportune time if you are seeking quality and call protection IMO.
• Chicago homeowners are getting hit with a record property tax hike after the city’s downtown office buildings and other commercial real estate values fell again.  The lower values will translate into a bigger burden for many homeowners in the Chicago area. We reported that the city is proceeding with the issuance of GO debt. The property tax increase will be viewed as a negative by the rating companies.
• As we get closer to year-end, MUNIs enter a period of constructive seasonal conditions, marked by lighter supply and steady demand historically. Combined November and December investment cash rises 19% vs September and October, which should help the MUNI market stay in the range we are seeing now regarding yields.

Bottom line:

Tax preparation should be taken into consideration at this time. Should you have questions, let us know. Furthermore, yields are steady to perhaps slightly down, but not enough to make any significant difference in pricing. The longer end of the curve is performing better than the shorter end, as many are trying to lock in yields here with call protection.