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May 20, 2019

Muni Weekly Recap. Munis rallied in sympathy with Treasuries on US-China trade fears but outperformed across the curve due to the chronic supply demand-imbalance of the tax-advantaged asset class -- as has been the case all year. Muni fund flows were positive for the 19th consecutive week at $1.27 bil. (YTD record of $22.87 bil.), a significant portion of which came from equity funds that experienced -$12.2 bil. of outflows on the week. New issue supply of $8.0 bil. was again well-subscribed, led by Univ of Pitt Med Ctr, DASNY Sch Dists, Triboro Bridge and Tunnel, State of Texas, VA College Blds, and Prince Geo Cnty, MD. Secondary market activity rebounded last week from the prior week’s lackluster throughput, with average daily BWICs and trades. The S&P Main Muni index returned +32 bps on the week, +89 bps so far in May, and +402 bps YTD. Long duration led Muni market returns at +40 bps on the week (+600 bps YTD). MMD was bumped across the curve, including -7 bps in 2yrs (1.46%) and 5yrs (1.49%), and -3 bps in 10yrs (1.72%), 20yrs (2.24%), and 30yrs (2.40%). MMD 2s30s bull steepened +4 bps to +94 bps, 2s10s was +4 bps steeper at +26 bps, and 10s20s and 20s30s were unchanged at +52 bps and +16 bps, respectively. SIFMA was bumped -24 bps to 1.34% from 1.59% as investors cleaned up dealer inventory of floating rate bonds down to only +$500 mil., or just 16% of average daily balance. Overall dealer inventories are in drought conditions at +$13 bil., or -27% below average. Munis outperformed on the week causing valuations to remain off-the-chart rich with 10yr and 30yr M/T ratios showing 1yr and 3yr Z-scores of over -2.5 SDs. Credit spreads are also universally compressed across the credit spectrum, indicating very little value for credit risk...

Market Recap. Last week’s markets were dominated, with varied impacts, by US-China trade concerns and to a lesser degree Iran tensions, Brexit, and US economic data and corporate earnings. The week began with China imposing retaliatory trade tariffs on certain US exports, resulting in a massive equity market sell-off Monday with S&P 500 and DJIA falling -2.4%, the NASDAQ falling -3.4%, and Treasury yields in 5yrs falling -8 bps. Trade and protectionism news was mixed as the week progressed, with Trump delaying EU/Japan auto tariffs and lifting steel and aluminum tariffs for Mexico/Canada, but also restricting Chinese telecoms (notably Huawei and ZTE) from the US market. US equities recovered from the trade scare on Monday but overall finished down on the week on glimmers of a trade deal (G-20 in June?), better than expected consumer and inflation sentiment, good housing data, and strong earnings reports from Walmart and Cisco. The S&P 500 lost -76 bps (+14.07% YTD) with the tech-heavy NASDAQ dropping -1.27% (+17.80% YTD). In contrast to the equity market, the Treasury market was relatively more...

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Quarterly Review


Dear Clients,

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:

  • In 2018, with accommodative fiscal and monetary policies, and strong global growth, US real GDP grew at about 3% – somewhat above the economy’s longer-run growth potential, which the Fed estimates to be a bit below 2%.
  • The FOMC begins to take a more judicious stance towards the future path of monetary policy – in light of the cumulative 225 bps tightening, 100 bps of which occurred in 2018.
  • FOMC participants estimate that the neutral longer-run federal funds rate is in the 2.5%-3.5% range, whose lower bound is near the current rate.
  • As the FOMC becomes more uncertain about the tightening effects of the balance sheet roll down, it begins to pay more attention to the maturity structure of the portfolio and the balance of Treasuries vs. mortgage-backed securities.

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.

Full Quarterly Report