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MUNICIPAL SUPPLY SURGE

The municipal bond market is dealing with a surge of supply of epic proportions, both from new issuance and existing supply in the secondary market. Historically, supply surges have often led to imbalances that resulted in price declines, but municipal bond prices have only showed minor cracks so far.​

TANTRUM BREWING?

We do not see the recent rise in Treasury yields as the start of another “taper tantrum” bond sell-off. Several diverse factors pushed Treasury yields higher last week, but their ability to persist is questionable.

AUGUST RECAP

Mixed messages from the Fed and middle of the road economic data kept Treasury yields in a very tight trading range throughout August. Economically sensitive sectors continued to rally in August, while high-quality bonds lagged as Treasury yields moved toward the upper end of their recent range.

A DEEPER LOOK AT THE RISE IN LIBOR

3-month U.S. dollar Libor has increased by 0.2% over the past two months, which carries almost the same impact as a full rate hike, even though the Fed has not raised rates since December 2015. Investors in bank loans may benefit if Libor continues to rise, given that the floating rates may start to move higher once the 1% Libor floor that many issues carry is exceeded.

IS FOREIGN DEMAND FADING?

Foreign demand has helped drive Treasury yields lower and support prices over the past year, though increasing hedging costs may prove problematic moving forward. Demand from indirect bidders continues to be strong at Treasury auctions, muddying the argument that higher hedging costs may cause foreign demand to weaken.

 
Results: 15 Articles found.
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