March Madness for Congress
The buzzer goes off at midnight on the budget approval watch. It has become increasingly difficult to accept that the deadline will be met. There has been a preliminary agreement that has small wins for both parties that are within the parameters of the budget as originally agreed to by the last Speaker and the President. The larger issues of the climbing federal debt and debt service will need to be addressed another day.
Just think for a moment what would happen to a state or locality that is six months late with its budget. A credit watch action would be the minimum development, and there is always the possibility of a downgrade without waiting for the budget outcome. Actions have already been taken on the rating of the nation but further action may not be dismissed summarily.
As highly anticipated, the Fed did not surprise the market this week. Only the dot-plot changed marginally. Most pundits continue to call for the timing of the commencement of rate cuts in June or July. Some observers suggest that there may be no cuts this year given the strength of the economy. I tend to believe that June or July is not absolute. The September meeting is taking place much too close to the election and since the Fed is apolitical action may be avoided at that time.
Inflation and employment remain relatively strong in their latest measures. There is some evidence in the equity markets that retail is slowing and the outlooks by the companies on future activity is more reserved. This slowdown will have some negative effects on GDP growth. The Fed appears to be adhering to continuing to engineer the soft landing.
The pullback of the climate disclosures newly formulated by the SEC was surprising. It looks like a situation where it is back to the drawing board. There will be some rules. Methinks private industry doth protest too much. This development does not mean that the bar will be lowered for the municipal market but concrete action will await some guidance from any revised rules for corporates.
It is not any surprise that we have a spike in issuance in the coming week in the municipal market of over $9 billion in the last week for the quarter. Bankers need to make their numbers. But a more important aspect is that there have been positive flows to the mutual funds in recent weeks. Other factors include the rollover and a desire to avoid the April 15 deadline. It is also true that rates have been in a range even though the ten-year Treasury has risen to 4.21% after attaining a higher level earlier in the week.
Reviewing the disclosure for the large California deal that is coming to market should be informative. The last GO sale was in November so this document will be studied and evaluated. How a budget gap will be closed is of particular importance. Also, of note is how much the reserves will be drawn on is key. The economic assumptions will also be noteworthy but could change by the May Revision.
The CBC survey of conditions in New York City has data points for everyone. The granular detail in the study is impressive. More attention is being directed to many of the factors that are highlighted in the study including public safety and transportation among many others.
Rates should be in a range this week but some of that perspective may hinge on whether we have an approved federal budget or Congress somehow stops the clock again.
John Hallacy
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