Insights

CREDIT AND MARKET STRATEGY
MUNICIPAL MARKET WEEKLY

May 26, 2020

Global: Optimism on better days ahead

Equities rallied on optimism over Moderna’s Covid-19 vaccine, more states reopening, and Fed Chair Powell’s testimony, despite escalating trade and Hong Kong tensions with China and continued dismal economic data. Moderna on Monday reported a promising Phase 1 trial on its Covid-19 vaccine, although questions emerged regarding the data. Powell had positive comments on Sunday’s 60 Minutes and again on Tues during testimony before Senate Banking Committee that the Fed still has tools to aid the economy as minutes from the Fed’s April meeting (released Wed) indicated how members see the pandemic as posing “an extraordinary amount of uncertainty.” Treasury Sec Munchkin also testified to the committee of his intention “to borrow a lot of money in the short term and to expand” debt issuance to lock in low interest rates. 

Municipals: Positive tone continues for third week as supply-demand imbalance returns

Recap: Tax-exempts bull steepened and outperformed Treasuries for a third consecutive week on very strong fund inflows and June reinvestment against a light new issue calendar and a dearth of bonds in the secondary. The supply/demand imbalance has been driven in part by the high percentage of taxable issuance (23% YTD). Fund inflows have been driven by the extraordinary value of the tax-exempt asset class. Last week’s primary market absorbed 233 deals for ~$8.1 bil. including several deals that had been on “day-to-day” status. Fund inflows were positive for the second consecutive week at $1.8 bil. after the prior week’s +$582 mil.. The ‘AAA’ scale was bumped by an average of -23 bps , including -31 bps in 1-5yrs and -17 bps in 10-30yrs, resulting in a significant bull steepening in 2s30s (+14 bps to 147 bps). Bid-wanted lists were below average underscoring the dearth of bonds available in the secondary.

Quarterly Review

SAMUEL A. RAMIREZ & COMPANY, INC.
QUARTERLY MACROECONOMIC OUTLOOK
FINANCIAL STRATEGIES GROUP – 1st QUARTER 2020

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:

• The US economy enters its 11th year of expansion, and will likely grow at a pace moderately above potential (1.75%-2%).  The labor market stays robust as unemployment falls to 50-year lows
• Business investment remains downbeat, restrained by weak growth abroad and trade conflicts.  However, a “Phase 1” agreement between the US and China is at hand, and consumer spending is robust.
• The 10Y Treasury yield approaches historical lows, and Moody’s Baa Index yield slides to levels not seen for over 60 years.
• US equity markets reach new highs.  Money markets are rattled, prompting the Fed to intervene through repo operations.  The Fed’s balance sheet expands in the last quarter by $400bn.

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.