FMNY - Q2 2024 Credit Commentary - And The Year Rolls On
2024-07-18 09:35:00 ET
Summary
- The credit cycle does not yet seem to have turned; at worst, it is mixed.
- On the muni front, governments and agencies are determined to maintain strong fund balances or reserves and are cutting costs or raising taxes to have balanced operations in the face of the drawdown of pandemic funds, higher wages and prices, and slower economic growth.
- The municipal market has about $4 trillion in bonds outstanding by over 50,000 issuers, and many of them are small, so it is not unusual to hold bonds with only one rating.
By Patricia Healy, CFA
The credit cycle does not yet seem to have turned; at worst, it is mixed. Last quarter, we were wondering in our Q1 commentary, will this be the year credit trends reverse? Corporate spreads are tight; job growth has been strong enough to keep the Fed from easing; consumers are spending, albeit more slowly, and getting accustomed to higher interest rates. There is the underlying issue that the housing market is stuck, and younger folks are spending instead of saving for a down payment and taking on mortgages, while those who have low-rate mortgages are loath to give them up and have slim pickings for another abode. There is some weakness in private, sovereign, and other credit markets as well as the office segment of commercial real estate and the banking sector, which has bifurcated credit quality between the big banks, which have more flexibility and products, and the regional banks that are not faring as well. Early-July economic releases, which show signs of a cooling job market, and the third straight month of rising unemployment may indicate the economy is slowing. The ups and downs in economic data affected muni market returns as well - please see John Mousseau's commentary, " Two Tales in a Quarter ."...
Q2 2024 Credit Commentary - And The Year Rolls On