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January 14, 2019

Treasuries sold off and Munis ended mixed on the week as risk-on sentiment carried over from the previous week on the very strong Dec. nonfarm payrolls report, dovish Fed comments, rising oil prices, and some progress on US-China trade relations. The Fed minutes and Chairman Powell’s comments on Thursday reinforced the Fed’s flexible outlook on rates and balance sheet tapering in 2019, further buoying risk assets, although Dec CPI disappointed on Friday (-0.1%) causing rates to strengthen. Treasuries also strengthened on Friday due to continuation of the partial Federal government shutdown, which is now the longest in US history. Investors fear that the Fed Gov’t shutdown will likely weigh on US growth for Jan.  Municipals outperformed Treasuries through 10yrs and slightly underperformed in...

The ‘AAA’ MMD scale was bumped 1-2 bps through 5yrs and cut between 1-8 bps in 10-30yrs, including +8 bps in 30yrs, causing MMD 2s30s to bear steepen +9 bps to 131 bps. MMD in 30yrs was also adversely affected by the weaker $16 bil. 30yr Treasury auction on Thurs. Treasury 2s30s bear steepened by +4 bps to 51 bps and the 10yr T-Note ended +4 bps higher at 2.68%.  Also notable on the week was the strong demand...

Munis richened slightly last week although valuations in most credit sectors and curve points appear fair and generally in-line with 1-3yr averages based on yield, ratios, and credit spreads. As discussed in previous editions of this newsletter, we think that intermediate and longer durations through 20yrs should outperform shorter durations in 2019 provided that interest rates remain somewhat range-bound (as we expect) and net supply remains negative. We like a...

This week’s primary market calendar has $7.4 bil. of gross supply, including $5.9 bil. in negotiated offerings. The negotiated market is led by $700 mil. Main Street Nat Gas, $551 mil. taxable Chicago Sales Tax (AA-/AAA; Ramirez Co-Snr) pricing Wed, $450 mil. NYC Muni Water (Aa1/AA+/AA+; Ramirez Co-Mgr) pricing Wed, $441 mil. Mass DOT (Aa2/AA/AA+) pricing Tuesday, and $430 mil. Arizona COPs (Aa3/AA-) pricing Tues. Competitively, the market is led by $269 million Wake County, NC (Aa1/AA+) selling on Tuesday. Gross supply YTD is...

Despite the narrative that Muni net supply is routinely negative, market cash flow (maturities/calls/coupons minus new issues) is generally positive on a monthly basis, which together with negative net supply supports prices. Ramirez is...

This week’s major data release will be PPI on Tues, retail sales on Wed, housing starts on Thurs, and Univ of Mich sentiment on Friday. Some data will be postponed due... Full Weekly Report

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:

  • Almost a decade after the onset of the Great Contraction of 2007 – 2009, the Fed deserves an “honorable mention” for achieving its dual mandate of full employment and price stability – the cries of naysayers notwithstanding.
  • And now, the Fed is on to its next phase of gradually raising the federal funds rate to around 3% and passively contracting its balance sheet.
  • Market participants who are bullish on the economy think that 10Y Treasuries will move up to a fair-value yield of 4% as the term premium rises, while forecasters who are bearish on the economy think that the 10Y yield will move around an anchor of 3%, possibly because of still expanding foreign Central Bank balance sheets and strong global demand for safe assets.
  • Risks on the horizon entail rising US debt-to-GDP levels, financial market distress due to “trade wars” or “overpriced assets,” pressures on the short end of the yield curve primarily due to increased US Treasury funding needs and worries about a flat or an inverting yield curve signaling an impending recession.
  • The question remains whether the Fed will be able to smoothly navigate around the risks mentioned above. Consensus is emerging that the Fed’s balance sheet will not contract as sharply as initially expected.

    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