We believe we will see continued pressure on yields to increase

The 10-year is trading at 4.40% this morning. We believe we will continue to see pressure on yields to move up.

Boston Fed President Susan Collins supports further interest-rate cuts with a cautious approach to avoid moving too quickly or too slowly. She described the economy as overall healthy, with inflation on track to reach the Fed’s 2% target. A December rate cut is possible, pending incoming data. We are starting to see more talk like this, agreeing that the Fed should continue to lower rates, with inflation being the first goal.

Chicago’s credit rating is under pressure as Mayor Brandon Johnson and the city council struggle to address a nearly $1 billion deficit for 2025. S&P Global Ratings placed the city on “CreditWatch with negative implications” due to concerns over reliance on one-time fixes instead of structural solutions. The city’s current challenges include underfunded pensions, rising labor costs, and dwindling federal aid, with deficits projected to grow in coming years. Johnson’s proposed $300 million property tax hike was rejected, prompting alternative considerations like a $150 million increase and higher taxes on cloud computing. Other agencies have also put Chicago on negative credit watch; now we are seeing S&P do the same.

According to the Investment Company Institute, investors added $360 million to municipal bond mutual funds in the week ended Nov. 13. The prior week saw a $165 million inflow. As expected, fund flows are increasing after election week.

California’s budget is in better shape thanks to strong tech-driven tax revenue, but more is needed to bring back corporate tax breaks before 2027. The state has been limiting net operating loss deductions and tax credits, which brought in an extra $5.5 billion a year and helped close a $27.6 billion gap. While the Department of Finance could end those limits early if finances improve, the Legislative Analyst’s Office projects a $2 billion deficit for 2025-26 and even bigger ones down the road, making an early reversal unlikely.

Over the next two years, $451 billion in municipal bonds are subject to being called, with $211 billion eligible in 2025 and $248 billion in 2026. Most of these callable bonds carry higher coupons between 4% and 6%, totaling $165 billion in 2025 and $190 billion in 2026. The potential changes to the Tax Cuts and Jobs Act under the incoming administration could impact the municipal bond market. There is renewed attention on refunding opportunities, especially given the Act’s initial restrictions on Muni advanced refunding.

The MTA board approved Manhattan’s revised congestion pricing plan, which is expected to generate $15 billion to modernize the city’s transit system. Starting in January, this plan will impose fees on E-Z Pass motorists entering south of 60th Street during peak hours, with higher fees for non-E-Z Pass users and trucks.

Andrews at Francis Place, a senior living facility near St. Louis, defaulted on over $36 million in municipal bonds after missing a Nov. 15 interest payment on its Series 2020A bonds. The bonds funded the construction of 96 independent living units in Eureka, Missouri. It is the 16th senior living facility to default on Muni bonds this year, the most for any sector. We do not typically trade in this type of bond.