U.S. Muni Market: Supply Surge Set To Keep Muni Costs Manageable

UTA Eyes a ‘AA’-Rated, Taxable Bond Sale

Municipal bond investors have been generally challenged by wild swings in U.S. interest rates, as global headwinds have fluctuated and developments in the domestic economy have sent mixed signals.

The yield on the 10-year U.S. Treasury note was last bid at around 1.78% after having fallen around 7 basis points week-over-week Friday.

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A host of market-moving events crossed the newswires throughout the week, including the Federal Open Market Committee’s (FOMC) decision to slash the target range for the federal funds rate by another 25bps – its third cut in 2019 – to 1.50%-1.75%.

The reduction was made on the back of “weak” business fixed investment and a rate of inflation that has been running below the central bank’s 2% target.

Fed Chair Powell said that the committee views “the current stance of policy as likely to remain appropriate as long as incoming information about the economy remains broadly consistent” with its outlook. Overall, he added, “we’ve seen moderate growth, a strong labor market,” and inflation “moving up,” amid an outlook that is “for more of the same.”

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Further strength in domestic employment was unveiled ahead of the weekend, after the U.S. Bureau of Labor Statistics (BLS) added a total of 128k jobs in October – far more than expected – with another 95k in total upward revisions for the prior two months.

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Among other updates for the U.S. labor market in October, the unemployment rate held near a 50-year low at 3.6%, the participation rate climbed 0.1% from the prior month to 63.3% — its highest level since June 2013 – and average hourly earnings (AHE) for private-sector workers notched-up by 0.2% over September for a 3.0% year-on-year gain.

Jefferies chief financial economist Ward McCarthy noted that the details of the household survey were “rock solid” and continue to improve at “an astounding rate.” He added that the employment data “is always more compelling when both the establishment and the household survey tell a similar story,” and both surveys “tell a very positive story”.

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Manufacturing Sector Betrays Labor Market Strength

Although most details of the BLS employment situation report for October resonated with strength, a total of 36k manufacturing jobs were shed in the latest month, underscored by 42k fewer persons employed in motor vehicles and parts — primarily a reflection of strike activity at General Motors (NYSE: GM).

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