FMNY - Q1 2024 Credit Commentary - Will This Be The Year Credit Trends Reverse?

2024-04-18 07:30:00 ET

Summary

• Muni yields have followed Treasury yields up, with liquidation of assets to cover tax payments coming due and higher expected supply.
• Muni demand is expected to increase, as it usually does during the summer, with reinvestment of June 1 and July 1 coupon and maturity payments.
• Adding to demand may be the expectation of higher tax rates in the future, with the TCJA expiring at the end 2025, though some may benefit through higher SALT deductions.

By Patricia Healy, CFA

Interest rates and inflation are still up, but the Fed has paused and indicated that easing will be the next step. However, given better-than-expected economic data, the estimates of rate cuts are fewer and farther in the future. The stock market performed well in Q1, with expectations of lower future rates and perceptions of increased productivity due to AI. The strong market performance has improved the wealth of households, pensions, endowments, insurance companies and others. While Treasury rates rose more recently with the stronger-than-expected economic data, positive demand helped munis have an excellent first quarter. See John Mousseau's quarterly . Recently, muni yields have followed Treasury yields up, with liquidation of assets to cover tax payments coming due and higher expected supply. Muni demand is expected to increase, as it usually does during the summer, with reinvestment of June 1 and July 1 coupon and maturity payments. Adding to demand may be the expectation of higher tax rates in the future, with the TCJA expiring at the end 2025, though some may benefit through higher SALT deductions....

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