Displaying items by tag: rates

(New York)

Munis have had a great year. Ever since Biden’s election, munis have surged in value because of two core assumptions. The first, and by far the biggest, is that taxes were likely to rise with Democrats in power. The second is that the Democrats would be more financially supportive of states and local governments. In the immortal words of Lee Corso, we’re here to say “not so fast!”. The assumption that taxes are going to rise looks weaker and weaker, and the same goes for the financial support for states.

FINSUM: The Democrats were not able to force through tax rises alongside this major infrastructure package, and their chances of getting any tax hikes through before the midterm elections looks poor.

(New York)

You may not be paying much attention to it, but the last month has been very good for investment grade bonds. The reason why is that ratings agencies are in the midst of a massive wave of upgrades to companies that got downgraded at the start of COVID. This has sent demand for debt soaring as companies re-enter the investment grade market. For example, just in the week ending July 16th alone, the iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) pulled in $1.1bn in inflows. According to a credit strategist at Citi, “It’s like something that I have not seen in my time [in the industry] … After the financial crisis we didn’t get major companies moving back to investment grade so quickly”.

FINSUM: This is the early innings of yet another corporate bond bull run. Only credit specialists have mostly paid attention to this point, but investment grade bonds seem a good choice given the credit rating tailwind.

(New York)

By any reasonable measure, high yield bond markets look very scary right now. The way that yields have plummeted, the way that covenants have weakened, and the general ease of accessing credit are all reminiscent of 2005. Spreads over Treasuries have fallen to just 300 bp. A year ago they were at 600 bp. Companies have successfully weakened investor protections in new issues without penalty, and crucially, default rates will likely fall below 1% this year. The picture was the same in 2005.

FINSUM: By the Crisis, default rates hit 14% and high yield investors got killed. However, a big correction in high yield would take a catalyst. Is it a sooner-than-expected Fed pullback?

(New York)

The summer bond market has a pretty predictable summer pattern. Normally…see the full story on our partner Magnifi’s site.

(New York)

Treasury yields sank last week, before rebounding strongly late in the week…see the full story on our partner Magnifi’s site.