The 10-year Treasury is trading at 4.39% this morning as of 11/07. We saw high cuts yesterday, +17bps on the long end, the highest move we have seen in a long time for one day. The theory is that Trump will widen the economy and cause inflation to surge. We saw the same pattern in the 2016 elections; 10 yr went from 1.78% on November 1st to 2.38% at the end of November. We are not in the same position, as this is post-COVID times with inflation already higher than it should be.
IL voters approved a nonbinding proposal to add a 3% tax on incomes over $1 million, potentially setting the stage for a renewed push to tax the state’s highest earners. The advisory measure gained 60% support, and while it has no immediate legal impact, it signals strong public backing for increased taxes on the wealthy. This tax, if implemented, could help reduce the budget deficit the Governor is trying to fix and help maintain the recently improved ratings. However, it could also lead to a potential exodus of high-income earners from the state, impacting tax revenues and the overall economy.
CA voters have given the green light to two significant bond measures on election day, totaling $20 billion for climate resilience and education infrastructure. These are the most significant public investments in these areas in the state’s history. Proposition 4 authorizes $10 billion in bonds dedicated to climate change projects such as clean water, wildfire prevention, and clean energy. Proposition 2 secures $10 billion for K-12 schools and community colleges to upgrade facilities, improve water quality, and build transitional kindergarten spaces. These measures could significantly impact state credit ratings, investor appetite, and long-term yields as the state continues to issue bonds to address its pressing issues.
The typical age of a homebuyer in the U.S. soared to an all-time high of 56 as younger generations face significant barriers to entering the housing market. According to the National Association of Realtors’ 2024 Profile of Home Buyers and Sellers, first-time homebuyers now make up just 24% of the market—the lowest share since data collection began in 1981. The median age for first-time buyers also hit a record of 38, nearly 10 years older than in the 1980s. Real estate will continue to see this as a pain point going forward.
Before the pandemic, when rates were much lower, the demand for maximum coupon protection among municipal bond buyers was waning. By 2021, the issuance of 5% coupon bonds had reached a multi-year low, with 4% and 3% bonds gaining a larger market share. However, as inflation surged and interest rates climbed, those trends reversed. Over the past three years, the share of 5% coupon Muni bonds has surged, reaching its highest level in six years. In contrast, the issuance of bonds with 3% coupons or lower has dwindled to multi-year lows. We have seen this trend; most traded bonds have higher coupons every week. These higher coupon bonds are becoming very attractive at these prices.
The Bottom Line:
While significant attention is on the stock market today, if you are a long-term bond buyer, opportunity exists now, and you could see a +/—20bps in the coming days. It would be a wise choice to buy paper here and enter the market. I think yields will move higher, and this is an opportunity to take advantage of additional returns before rates fall again.
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
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www.drlgroup.net
605-B Park Grove
Katy, TX 77450
866.664.4040 (toll-free)
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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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