November 2019 –“Bungle in D.C.”
New bond issuance, spurred on by taxable refundings, has accelerated, making for a busy year-end in muniland. In the month of November, this issuance was met with cash and strong demand -allowing munis to outperform. We will see if this can continue through year-end. Yet, in the process of underwriting all of this issuance, there has been some opportunities available. We have taken advantage of this by making the first purchase for Fund VI, along with bringing in bonds for customer accounts.
It is no secret that Washington DC is known for wasting taxpayer money and implementing poorly thought out plans; it is all about politics and making sure everyone knows what to do and how to do it. The 2017 Tax Cuts & Job Act are yet another example, as it contained a last-minute addition prohibiting tax-exempt advance prerefunding by municipalities. There has never been a rationale as to why this was added, or anyone actually stepping up and claiming ownership. All we know is the lack of advance refundings over the last four months will cause municipalities to incur $3.87 billion in additional debt borrowing costs in the next ten years –funds that could be used for public infrastructure needs. We estimate, by the end of 2019, this could grow to roughly $4.4 billion over the next ten years. Sounds like another “Bungle in DC”.
Muni Market Review
In the month of November, under a surge of issuance, munis outperformed taxables. The increase in issuance should continue and we will see if munis can continue to outperform during the last 30 days of the year. Highlights as follows:
- Muni yields are unchanged, except for 1 bps lower for the 7-year rate.
- Taxable yields increased from 9 to 11 bps over the month.
- Supply continues to accelerate, as refunding and new money continues to grow over 2018 volume. Details as follows:
- 2019 year-to-date versus 2018 is up 18% and 2.5% higher than the five-year average level of issuance.
- 2019 refunding is up 40% from 2018, with 41% of it being issued as taxables.
MainLine West Tax Advantage Opportunity Fund VI has made it first purchase and is hoping for additional opportunities between now and year-end. We are still taking new subscriptions for the next couple of weeks, before we will close the Fund. If you have interest in a subscription, please let us know ASAP.