CREDIT AND MARKET STRATEGY
MUNICIPAL MARKET WEEKLY
August 6, 2018
Municipals underperformed across the curve on high valuations and oversupply of bonds in the secondary. Treasuries ultimately caught a bid late week on a spike in trade tensions with China after first selling off on the Treasury Dept’s refunding announcement earlier in the week. The Fed left rates unchanged as expected on Wed. and affirmed a gradual pace of rate hikes going forward. New issue of $5.2 bil. had a mixed reception largely due to lack of support in...
Treasury rates ended the week mixed after the week was dominated, as expected, by central bank meetings, a Treasury refunding announcement, solid, but weaker than expected jobs data, and trade concerns. Range-bound rates are likely attributable to confusion over US trade policy and investor sentiment of a slowdown in economic growth in 2H18 as the effects of last year's U.S. tax overhaul fade, despite most corporations beating Street expectations at...
MMD 2s30s was 2 bps steeper on the week at 141 bps after scale cuts averaging 4 bps. Treasury 2s30s was 4 bps steeper after the 2yr T-bill yield ended the week 2 bps better (2.65%) and the 30yr bond yield rose 1 bp to end at 3.09%. Munis underperformed by an average of 1.75 ratios across the curve, including 1.8 ratios in 2yrs to a still very rich 62%, and by 1.5 ratios in both 10yrs and 30yrs to 84% and 98.6%, respectively. Despite weekly underperformance across the board, Munis in 2yrs and 5yrs have outperformed YTD by...
Gross new issue supply this week ramps up to a healthy $8.87 bil., or 131% of the 12-week average, with negotiated transactions representing $7.01 bil., or roughly 79% of total supply. The negotiated market is led by $1.23 bil. Advocate-Aurora Health (Aa3/AA) on Tues. and $811 mil. NYC GO (Aa2/AA) on Wed. These transactions should do well given generally shorter maturities. Competitively, Minnesota is selling $619 million GO bonds on Wed. Total gross supply YTD is $186 bil., or -15% YoY, which is surprising to the upside vs our call for total supply at -27% YoY ($317 bil.). We think YTD gross supply is higher than our projection at this point due primarily to higher-than-projected new money of...
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SAMUEL A. RAMIREZ & COMPANY, INC.
QUARTERLY MACROECONOMIC OUTLOOK
FINANCIAL STRATEGIES GROUP – 2nd QUARTER 2018
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.
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