Many FED Governors supported the Fed’s decision to move rates down; Adriana Kugler is one of them. Yesterday, she indicated that sustained progress on inflation and a moderating labor market means it is time for the Fed members to ease policy and pay close attention to the employment side of their mandate. The bottom line is that many of the FOMC committee members see rates continuing to come down, and the employment numbers will take precedence over CPI now, in my opinion.
MA is seeking 490MM in MUNI debt to help fund improvements for its commuter rail and other transportation projects. If you seek MA debt, this should be priced competitively and could hit the market over the next 30 days.
For those who are buying taxable debt, MUNIs are looking attractive to this structure with valuations at or close to their cheapest levels this year. MUNIs could get more affordable in the coming months following the 50bps rate cut, per BOA, as well as Goldman. BOA, Goldman, and Barclays advise investors that this is an excellent time to buy paper. The cheapening of paper does not reflect weakness in MUNIs but rather richness in the taxable space. We are seeing new issues being priced at 4.25%; we suspect this will be temporary and should be considered a buy.
The SEC has approved a proposal by the MSRB to shorten the time for municipal securities trade to be reported within one minute. This rule continues to push BDs to trade on an electronic term. I suspect this will be passed and take effect in early 2025, if not sooner. With the T+1 settlement now, we are seeing tighter regulations for BD’s to report quicker while putting tighter payment restrictions for clients.
FED Reserve Bank of Philadelphia President Patrick Harker indicated that the risks to the US labor market and inflation have come into balance. I suspect you will see more FED members indicate this as well as we move through the month of September.
FED Governor Michelle Bowman said cutting rates by 50bps this week risked signaling the US central bank was declaring “victory” over inflation too early. She clarified that the FED should continue at a measured pace towards a more neutral policy stance, ensuring further progress in bringing inflation down.
Vetting MUNIs – this is important to many and should be important to buyers of the asset class. Rates will go up and down. However, the quality of A-rated and higher MUNIs remains strong. DRL continues to develop technology to assist in the vetting aspect of this asset class and ultimately befitting our clients. If you are a prospect vetting DRL, we would suggest you give us a call and speak to us about the exact way we select price, and monitor MUNIs for our clients.
We have discussed Chicago on many occasions within DRL – the Mayor of Chicago is currently seeking approval to sell as much as 1.5B of bonds to refinance old debt to help plug this year’s deficit. We have been bullish on this city (and we know some do not like it due to the political aspect); however, the bonds have performed well. With this new debt issuance, we will monitor what debt is “taken out” with the proceeds and their overall increased debt load should that happen.
The Bottom Line:
Rates continue to move down, and MUNI structures remain strong. We know we have been through difficult times over the past 3 years; however, MUNIs should always bounce back and ultimately mature or get called at par. If you can buy >4% YTW here, consider buying here.
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 are offered through New Edge Securities, Inc., a registered Broker-Dealer, FINRA and SIPC member. The DRL Group is not a subsidiary or control affiliate of New Edge Securities, Inc.New Edge Securities, Inc. has no affiliation with Bond Desk Trading LLC, Bond Trader Pro, Tradeweb Direct, Bondpoint, TMC, or any other ECN.
Do not buy discount bonds based on the Yield-to-Call (YTC). YTC does not indicate total return; this yield is valid only if the security is called. Bonds may be callable on multiple dates or 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). Bonds could also be subject to the DeMinimis Rule; please consult your tax advisor for further clarification. Insured bonds are issued for timely principal and interest payment only, do not cover potential market loss, and are subject to the insurance company’s claims-paying ability. Municipal income may be subject to state, local, and Alternative Minimum Tax (AMT) taxation. Corporate and Municipal securities are subject to gains/losses based on the level of interest rates, market conditions, and credit quality of the issuer. 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.
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