CREDIT AND MARKET STRATEGY
MUNICIPAL MARKET WEEKLY
July 22, 2019
Muni Recap. Munis gained on the week but largely underperformed on rich valuations and low absolute rates as Treasuries posted a strong rally on bullish macro events/data. Muni new issue of $9.3 bil. was easily absorbed as newly tax-conscious investors continue to pour money into the asset class amidst negative net supply. Fund inflows were $1.7 bil. on the week and $33.3 bil. YTD, the 28th consecutive week of inflows. Munis outperformed in the 2yr spot (-1.14 ratio) but underperformed in 5yrs through 30yrs by an average of +1.56 ratios, including +2.68 ratios in the 30yr spot. Muni underperformance was insufficient to meaningfully cheapen M/T ratios, which remain rich across the curve on both a 1yr and 3yr basis (62% in 2yrs, 64.6% in 5yrs, 76.4% in 10yrs, and 88.7% in 30yrs). Credit spreads, however, remain fairly valued as absolute rates have fallen in 1H19 (pg 3). Last week’s MMD scale was bumped by an average of...
Market Recap. Treasuries finished stronger across the curve led by the 30yr bond on various bullish influences, including Trump’s comments on Tues that a US-China trade truce is a “long way” from resolution, dovish comments from normally hawkish NY Fed President Williams on Thurs, and lower-than-expected leading index (-0.3% in June vs +0.1% expected) and industrial production (0% vs +0.1% exp). Bearish rates influences included higher-than-expected retail sales on Tues (+0.4% vs +0.2% exp), Iran seizing a British oil tanker in the Strait of Hormuz, and US debt ceiling and budget negotiations (which by Friday appeared to be close to a resolution). On the week, the 2yr Treasury yield was lower by...
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SAMUEL A. RAMIREZ & COMPANY, INC.
QUARTERLY MACROECONOMIC OUTLOOK
FINANCIAL STRATEGIES GROUP – 3rd QUARTER 2019
Please find attached Ramirez & Co.’s Quarterly Macroeconomic Outlook. In our report, we continue to monitor the US economy, global events and the Fed’s outlook on the economy and rates:
- Despite numerous concerns and pessimism, the US economy remains healthy. The Fed expects GDP growth in the second quarter to be slightly below its potential of 1.9%. Inflation expectations decline and move away from the Fed’s 2% target. The labor market stays robust.
- Trade, politics, fiscal policy, private and public sector debt, fully valued markets, and slowing economies across the globe pose challenges.
- The markets see high likelihood of significant declines in the Fed Funds rate, with the bulk of estimates suggesting a drop of 25-75 bps by the end of 2019. Median primary dealer expectations are flat and Fed economists split on future expectations. By contrast, the EU and Japan wade deeper into negative rate policies.
Members of our Financial Strategies Group, Niso Abuaf, Konstantin Semyonov and Duncan Sinclair, would be happy to discuss further any of the material with you.
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