- Today’s 2/20 applications for US unemployment benefits showed little change last week, hovering around pre-COVID levels and indicating solid demand for workers. Initial claims increased by 5000 to 219000 in the week ended 2/15. There is not much change; we all know the FED will watch these numbers close. Nothing on these numbers will spark the FED to lower rates over the next few months. The original thought was a March move; however, now, many are thinking of December 2025.
- In relation to the upcoming Webinar, Zurich Insurance Group announced it is expecting pretax losses of 200MM from the January CA fires as the issuer reported a 5% gain in profit for 2024. This number compares with the 500MM net losses AIG has estimated post-fire. Travelers, Allstate, and Chubb anticipate more than 1B losses each. We will discuss this during the Webinar with Andrew from ICE, who covers environmental disasters and how they impact Fixed Income Markets. We encourage you to save your seat for this informative, non-scripted discussion regarding Fixed Income Markets.
- A Charter School in San Antonio is expected to close at the end of this year, jeopardizing 25MM of MUNI bonds the institution borrowed just three years ago. The TX Education Agency deemed this school academically unacceptable regarding performance. This is another reason we do not trade lower credit quality paper, mainly regarding charter schools, hospitals, or CCRCs. We will cover this in our Webinar next week regarding the question of buying lower credit quality paper.
- MUNI investors are being advised to scale back positions in credit that receive significant sums of money from the US Government as the current administration seeks to affect state and local policy by withholding federal funding. Municipal Market Analytics suggested that investors should be “careful” with borrowers who have deeper reliance on federal funding – we would tend to agree with this thought.
- Trump indicated he would likely impose tariffs of around 25% on automobile, semiconductor, and pharmaceutical imports, with an announcement coming as soon as April 2. It is unclear how this could impact Fixed Income; however, if you are buying corporate paper, we advise you to monitor anything that the tariffs mentioned above could impact.
- As we have been discussing, the FED is “content” with where rates are now regarding inflation. The FED Reserve Bank of San Francisco President said policy should remain restrictive until there is more progress on inflation, which she indicated “should continue to decline over time.” The bottom line here is nothing new: the FED will want to see inflation continue to come down to their 2% target. Rates will move before then, but at this time, it is anyone’s guess as to when that will happen.
- Longer-dated MUNI bonds have been the cheapest relative to treasuries since November as investors in the market for MUNI bonds confront questions around tax policy and absorb the swelling issuance. Yields on 30-year paper were about 85% of the level of similar maturities T rates as of last Thursday. A climbing ratio shows MUNIs are underperforming US Government debt.
- Musk’s aggressive push to cancel federal leases is pressuring some MUNI bonds backed by payments from the US Government. The White House has urged the General Services Administration, the government’s real estate manager, to cut federal office space. It will be hard to say how much debt is impacted. Still, investors have funded hundreds of millions of dollars of debt tied to buildings like NASA’s DC headquarters and an office for the Social Security Administration in Baltimore. This is something to watch, particularly if you are buying NON-Insured paper regarding this type of structure; I would be happy to discuss it.
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.
David Loesch
[email protected]
www.drlgroup.net
605-B Park Grove
Katy, TX 77450
866.664.4040 (toll-free)
281.398.8600 (direct)
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.
Call us at 281-398-8600 to invest in these or any of our other offerings today.
