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Munichain Market Perspective #6

By Matthew Gerstenfeld
Market Perspective

Primary supply is slated to upsize this week relative to last week’s holiday-shortened calendar as state and local governments nationwide assess financing objectives. Evolving economic developments have translated to sudden and unpredictable swings in rate activity, fueling higher levels of volatility and investment apprehension among investors.

Last week’s national unemployment rate settled around 3.6% with +390k jobs added, highlighting a return to pre-pandemic levels despite well-defined economic challenges. Despite the return to a pre-pandemic unemployment rate a sizable portion of the population remains jobless with limited motivation to join the labor force.

Surging prices nationwide continues to hinder economic growth, after gas prices approached nearly $10 per gallon in northern California. As inflation figures steadily climb, government-led monetary and fiscal policy maneuvers have failed to adequately curb the rising costs of common goods, placing further strain on Americans. Additional tightening on behalf of the FOMC will require patience and further monitoring as participants analyze the expected results of a well-balanced economy.

US treasuries bear-flattened over the course of last week’s holiday-shortened calendar, with the 5YR tenor widening 14 basis points to 2.95%, coupled with the 10YR & 30YR tenors settling at 2.96% and 3.11% respectively. Muni benchmarks outperformed treasuries, with bumps of 4-6 basis points noted across the curve despite subdued activity in the primary arena.

Muni/UST ratios adjusted accordingly with the 10YR and 30YR ratios standing at 82% and 89%, falling below the 100%+ levels witnessed in weeks prior. As retail and institutional investors acclimate to a rising rate environment, new issue participation is expected to increase as investors strategically put cash to work across limited supply.

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