Autumnal Changes
Leaves start to cascade down at this time of year and indictments are being delivered in similar fashion. No one may predict exactly how the scenario will play out in the indictment of the mayor in New York City. Everyone is entitled to their day in court. But, in the meantime, there are many pressing matters that need to be addressed daily for the citizens. The financing program should proceed without hindrance but updated disclosure will be an important aspect of the marketing of the bonds. One would expect some resolution before the national election but the timeline may not be possible. Participants will be monitoring to see if there is any widening of the spreads in the market.
How does one prepare for a hurricane on the scale of Hurricane Helene? Of course, there needs to be a short-term response and a longer-term mitigation strategy. The latter could prove to be quite expensive and would only be financed with long term municipal bonds. FEMA will always be there to be responsible for funding part of the recovery. However, given the increasing frequency of these events, FEMA does not have sufficient funding to meet all the needs. Public sector insurance solutions will continue to be a focus but there may be some inherent limitations in that market. We have come across instances where insurance companies will no longer write policies given the severity of the events that have trended up over time. More efforts need to be made in this area.
Some pundits have recently dubbed the national contest as which candidate can promise to give away more. There are always discussions about whether these measures would add to the growth of the economy or not. The analysis does not always yield clear indications. The proposed measures also have policy goals that may be more critical to some eyes. Of course, all these proposals would need to be approved by Congress. Recent assessments have concluded that Congress may change appreciably making approval of any proposals even less certain. And scoring of these proposals in terms of the budget is a long way off. One may conclude that there would be more pressure on the deficit and the debt unless offsetting actions are taken at the same time as approval of any of these proposals.
Equity markets continue to attain new highs and the forward momentum has remained strong. Yet, many advisors are now starting to discuss whether it is time to take some profits and to move into stable and steady fixed income. Flows into funds have been positive for several weeks at a time when supply has remained high with the Visible Supply at over $13 billion. Given there is a holiday next week, activity in the market will be a bit lighter starting in mid-week.
It is not clear that activity has really downshifted at this point before the election. The forward negotiated calendar has more Day-to-Day listings than we usually see. Some of these transactions are more rate sensitive such as the Gas Prepayment transactions.
The good news is that rates have come down of late and have not reversed course. The Fed made it clear with its 50 basis points cut that the focus has shifted somewhat from inflation to employment. Recent readings on inflation continue to indicate steady improvement. The market is now focused on an additional 50 basis points or more of easing. Any additional actions will come after the election. This approach means the market should continue to be quite efficient until at least after the election.
John Hallacy
John Hallacy Consulting LLC
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