Given the Fed's reluctance to "surprise markets or take actions that could be perceived as overtly political," Interactive Brokers Chief Strategist Steve Sosnick said, "we find it hard to believe that anything other than 25 bp is the likely outcome for the upcoming FOMC meeting."
Household ownership of individual bonds was the largest category of muni ownership at 44.6%, mutual funds at 19.2%, exchange-traded funds at 3.1% and U.S. banks at 12.4%. While not detailed in the Federal Reserve data, SMAs may hold up to $1.6 trillion currently.
The Federal Reserve's inspector general says the reserve bank CEO did not trade on confidential information or have conflicts of interest, but did violate central bank rules and policies.
The August consumer price index showed inflation remains above the Federal Reserve's target level and makes a 50-basis-point?rate cut next week?unlikely, economists said. Further, many expect the market will be disappointed going forward, as future cuts will likely be shallower than expected.
Patrick Harker, the longest serving regional reserve bank president, will leave office in June 2025. Directors at the Fed bank have started the search for his replacement.
Federal Reserve Gov. Michelle Bowman said she has concerns about an uptick in inflation and will need to see more positive data before supporting an interest rate cut.
All eyes now turn to the September Federal Open Market Committee meeting where the Fed is expected to cut rates, but market participants are mixed on whether it will be a 25- or 50-basis-point cut.
All eyes now turn to the September Federal Open Market Committee meeting where the Fed is expected to cut rates, but market participants are mixed on whether it will be a 25- or 50-basis-point cut.
"The Fed remains data dependent as always, but it now appears that the 'more good data' bar is not as high as it was before, particularly with labor market developments becoming more important," said Michael Gregory, deputy chief economist at BMO Economics.
Yields may move lower after the Federal Reserve "communicates its goals to ease policy in coming meetings," said Tom Kozlik, managing director and head of public policy and municipal strategy at HilltopSecurities.
Economists expect the FOMC to hold rates, although some say there's a case to be made for a July cut, with Fed Chair Powell setting the table for September.
The Federal Reserve chairman has two years left in his term, which he will serve regardless of who occupies the White House. Powell's term on the Fed Board of Governors expires in 2028.
"Bond yields are plunging [Thursday] as rate cut expectations soar following this morning's consumer price index release, which depicted the first month of deflation since July 2022," noted?Jos? Torres, senior economist at Interactive Brokers.
The new-issue calendar rises to $9.175 billion next week, with $6.089 billion of negotiated deals coming to market and $3.086 billion of competitive deals on tap.
"The forces of municipal fundamental and technical measures are setting up a reconciliation against higher UST yields," said Kim Olsan, senior vice president of municipal bond trading at FHN Financial.
Ransomware group LockBit threatened on Sunday to publish the stolen data Tuesday evening. Ransomware experts said it was likely that the group was bluffing.
"We will remain cautious until CPI and the FOMC are in the rear-view mirror and as long as these don't catalyze a sell-off (since that would trigger outflows) or catalyze a sharp rally (as municipals lag rates during a sharp rally and ratios can increase optically) ... " said Vikram Rai, head of municipal markets strategy at Wells Fargo.
USTs spiked 17 basis points on the short end and 15 to 12 10-years and out following the release, while triple-A curves saw yields rise two to five basis points, depending on the yield curve, in a more muted and typical reaction for the asset class.
The CPI print keeps the possibility of the Fed cutting rates at least once this year, potentially at least two rate cuts if the data continues to point to a trend of inflation falling further, said Jeff Lipton, a research analyst and market strategist.
"The Fed is certainly not going to be overly concerned about the growth backdrop" at this week's Federal Open Market Committee meeting, said BMO Chief Economist Douglas Porter.
Wednesday's CPI report will "shed more light on the path of inflation and the potential timing for rate cuts this year," said Cooper Howard, a fixed income strategist at Charles Schwab.
As another economic indicator pushed investors closer toward the assumption that rate cuts are farther away, the relationship between munis, USTs and the vast amount of capital sitting on the sidelines becomes more challenging to navigate, particularly ahead of the tax-filing deadline and growing new-issue calendar.
In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.
Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.
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