- Treasuries rallied as inflation slowed and was lower than forecasted. On Wednesday, we saw a surge in US government debt, pushing yields lower by ~10bps across the curve. Based on the news from 1/15, traders are currently pricing in a rate reduction for July of this year. We would tend to agree with this at this time; however, as we all know, this could change based on data.
- US consumer prices rose in December by less than the forecast after months of faster underlying inflation persuaded the FED to signal a pause in rate cuts. CPI (which excludes energy costs) increased by .2% after rising by .3% for four straight months. Although not a significant decrease on the surface, it is going in the right direction, and this is all the markets need to start to “firm up” on pricing.
- We are seeing MUNIs yield well north of 4% on longer-dated paper, as we have not seen these yields since 2023. As mentioned, if you are seeking paper for the long term while also trying to buy quality paper to produce an income stream, this should be a good entry point. With yesterday’s numbers, yields moved down around 5 bps across the curve on MUNIs. However, they remain at elevated levels
- We have discussed Chicago many times before; S&P cut Chicago’s credit rating one notch this week due to a “sizable, structured budget imbalance.” This will make issuing paper more challenging as Chicago tries to issue paper and balance its budget. Chicago GOs are rated BBB from BBB+ with a stable outlook. If you are buying in Chicago, be mindful of the downgrade and the insurance company that might be insuring the bonds.
- Last Friday, T bills plunged as evidence of a resilient labor market pushed traders to shift expectations of rate cuts, as we have been telegraphing. The selloff on Friday pushed yields higher across the curve and bled into the MUNI markets, as we have been stating for quite some time. If you are buying for the long haul, pulling in around 4.30-4.50% on the longer end of the curve and 4% on shorter paper is attractive based on where yields are currently.
- Members of Trump’s incoming economic team are discussing slowly ramping up tariffs month by month, a gradual approach aimed at boosting negotiating leverage while helping to avoid inflation. One idea published is to raise tariffs by 2-5% a month. I suspect the FED will “stand by” and watch before commenting on any rate moves.
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.
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