(Washington)

While the actual language of the new DOL Fiduciary Rule has not been released to the public yet, its contents are growing more and more clear. According to numerous industry insiders, it looks overwhelmingly likely that the new DOL rule will not even attempt to touch the $10 tn pool of IRA assets and will instead leave those under the oversight of the IRS—which is exactly what the industry wants to happens. That means the DOL is only going after 401(k) assets, which at $9 tn, constitute a little under half of the total pool of assets the DOL could have tried to stake its claim on.

FINSUM: This is good news for those worried the new rule would govern IRA assets as well. Another interesting sign from the DOL came last week—the department announced it would now allow 401(k) assets to be invested in private equity deals.

(New York)

Big debt investors are pouring dollars into risky debt markets and products, such as CLOs and their subprime-backed assets. Why you may ask? (as anyone might right now) The answer is that the riskiest borrowers are surviving this downturn much better than anyone expected. Spreads between subprime-backed products and US Treasuries have narrowed sharply, while new deals have seen big demand. According to an analyst at Loomis Sayles “What is surprising is how strong credit performance has been … Fiscal policy is really keeping the subprime borrower afloat”.

FINSUM: Regardless of whether or not you are involved in this market, it is good news that the demand for these securities is actually being driven by fundamentals. It is both a sign of economic resilience, and also of market rationality.

(Dallas)

Markets tumbled yesterday, and it appeared to happen mostly because of the resignation that a second wave of COVID-19 was forming across the US. In several recently reopened states the number of hospitalizations has been surging, leading investors to fear that more lockdowns—and their corresponding economic damage—could be on the way. Top epidemiologists have been warning of a second wave, and one leading doctor said he worries about states reopening before they have the virus truly under control. “My worry is that we end up in a kind of stuttering, endless loop”, says Dr. Schneider of The Commonwealth Fund.

FINSUM: The market was priced for perfection, and a big second wave didn’t fit that narrative. Hence the 6% fall yesterday. Going to be choppy for a while as the market’s bad news antenna is back up.

(Washington)

We have some interesting new information about the recently re-drafted DOL fiduciary rule. Last week, the DOL sent what is largely considered to be its new fiduciary rule—entitled “Improving Investment Advice for Workers & Retirees Exemption”—to the OMB. The rule’s text has not been released, so to this point there has only been speculation about its contents. That said, a top industry lawyer familiar with the current process has said he expects the rule to have very close coordination with the SEC’s Reg BI. So much so, in fact that the lawyer—George Michael Gerstein, co-chair of the fiduciary governance group at Stradley Ronon Stevens & Young—expects if a firm is abiding by Reg BI it would likely be entirely exempt from the fiduciary rule. In his own words, “The DOL leadership under President [Donald] Trump has emphasized that they want the SEC to take the lead in terms of conflict of interest regulations, particularly when it comes to brokerage practices. It now seems likely that, if a broker/dealer [B/D] engages in actions that amount to providing investment advice under the Employee Retirement Income Security Act [ERISA], to the extent that the entity complies with Reg BI, that will be sufficient for meeting ERISA’s fiduciary duties.”

FINSUM: It sounds like Reg BI is going to be the dominant rule, and that anyone abiding by it may be exempt from DOL enforcement. This will likely be music to the ears of many in the industry.

(Chicago)

You might not pay much attention to them—most don’t—but closed end muni funds are an excellent deal right now. They are offering high yields relative to other fixed income peers. For example, you can readily get 5% yields on CEF muni funds, equivalent to an 8.45% taxable yield if you are in the top tax bracket. And to be clear, these are not junk muni bonds. The reason yields are so strong is leverage gained from borrowing money at short-term interest rates and buying longer-term bonds. That usually creates a risk that short-term rates could rise, causing losses. However, given the Fed’s position right now, that seems highly unlikely.

FINSUM: This is an ideal time to by CEF muni funds given the low rate risk and solid overall yields. Check out BlackRock’s MFT (5.39% yield), Putnam’s PMM (5.18%), or BNY Mellon’s LEO (5.56%).