- We have been discussing Higher Education for quite some time and the overall risks associated with that type of credit. Ohio Dominican University did not make its bond payment due 3/1, the latest issue the school is experiencing due to financial instability. The missed payment comes as the Columbus, OH based private Catholic liberal arts college has been confronting deficits for years. Seeking yield is not always the best approach when buying paper; always consider well-insured and/or strong underlying fundamentals when making decisions.
- We have seen yields across the curve move up ~10bps this week in MUNIs. With the 10T moving from 3.98% to around 4.13% at the time of this writing, yields are on the move. Weak economic data, geopolitical tensions, and benign inflation merits all helped reverse the technical momentum we saw last week. We suspect we will continue to see yields move up across the curve, with the belly of the curve experiencing most of the move.
- With this “shift” in yield, investors are adding funds to MUNI funds, as we saw a 2.21B inflow over the past week. The increase in yields is a welcome sight as many investors see this “rout in yields” as temporary.
- 3/4 we saw the dollar fall the most in about three weeks as oil prices rose and US stocks advanced. The greenback, as we saw, surged in the past two days against most world currencies after the US and Israel launched the airstrikes against Iran over the past weekend. We expect to see easing over the next couple of weeks. This should not impact MUNIs much; however, it will play a role in the FED meetings.
- Miran (FED Governor) indicated he feels it is appropriate to continue cutting rates, given that it is too early to assess the impact of the war in the Middle East on the US Economy. Miran indicated he did not see inflation as a result of the war and reiterated the FED should continue on the path of rate reductions. We do not see a cut this month when the FED meets.
- Kashkari (FED Governor) also indicated on Tuesday this week, “it is too soon to know what imprint this war has on inflation.” As the FED meeting draws near for this month, it will be interesting to read the comments. Again, we (along with many) are not expecting a rate move.
- We put out a piece this week about MUNIs deepening their sell-off on Tuesday, with benchmark yields rising as much as 11bps. In addition, rising oil prices spurred traders to curb bets on more than one FED rate cut this year – right now, it is too early to tell what will happen. Many, including us, continue to see 75bps this year, which could change in a hurry if crude continues to spike.
- What is interesting: T-bills and MUNIs just logged their best month of the year, until Inflation concerns are re-emerging. For weeks, safe haven buying was the dominant driver of Treasuries and MUNIs; this all changed on Monday of this week – again, yields elevated. If you are buying for the long haul, stick with quality.
Bottom Line
Yields are up across the board, and many dealers are not willing to “pay up” for securities until they see stability in the Middle East. Equities have started to rebound this week, the dollar remains strong, and Fixed Income continues to move up on the yield curve. The question is: if we see a “rush to quality,” which we are seeing in the dollar right now, then all other asset classes you would “think” are quality are moving up in yield. We expect yields to continue to move up across the curve, and as stated above, the belly of the curve is the hardest hit right now. Credit quality has not been impacted, and we do not expect it to be. Understand what you are buying and buy for the longer term.
Securities offered through NewEdge Securities, LLC, member FINRA and SIPC. The DRL Group is not a subsidiary or control affiliate of NewEdge Securities, LLC. NewEdge Securities, LLC. has no affiliation to BondDesk Trading LLC or BondTrader Pro, or Tradeweb Direct, Bondpoint, TMC, Market Axess or any ECN.
Yield to call (YTC) is not indicative of total return; this yield is valid only if the security is called. Bonds may or may not be called, or be callable on multiple dates or, in other cases, called any date following the first call date, so yield to call is based on the earliest stated call date. Discounted bonds may be subject to capital gains tax. Bonds may be subject to OID (Original Issue Discount). Prices and availability may change at anytime without notice.
Do not buy bonds based on the Yield to Call (YTC). Insured bonds are issued for timely payment of principal and interest only. Insured bonds do not cover potential market loss and are subject to the claims paying ability of the insurance company.
Non-rated (NR), With-Drawn (WR), or below investment grade bonds, lower rated bonds, carry a greater potential risk of default & should be considered by sophisticated investors only.
This document is for informational purposes only and does not replace or serve as a substitute for your official monthly statement generated by NFS. Please refer to your official statement for accurate and comprehensive account details.
Bonds may be subject to capital gains tax. This summary is for informational purposes only and is not an offer or solicitation for the purchase or sale of any security or a recommendation or endorsement of any security or issuer. NewEdge Securities, LLC. and DRL Group make no representation about the accuracy, completeness, or timeliness of this information. Bonds could also be subject to the DeMinimis Rule, please consult with your tax advisor for further clarification.
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