MMA_Outlook_16Feb2021

Independent and Data Driven

FEBRUARY 16 , 2021

WEEKLY OUTLOOK

This week, the official US COVID-19 death total will exceed a half million souls, citizens, consumers, taxpayers. Not surprisingly, the economic data remain poor; with an annual- ized inflation rate of just 1.4% in January, slowing job growth, and news that the Biden Administration is extending the foreclosure moratorium and mortgage forbearance program enrollment. That context suggests falling municipal bond yields and tightening spreads may be more appropriate than the losses being incurred by US Treasuries (30yr off 37bps YTD, ending Friday at 2.01%). Of course, muni action (benchmark AAA yields 2-5bps lower last week) is also a function of excess demand; est. YTD ICI inflows are $22.6B (inc l ETFs) & Jan/Feb reinvestment was $36.2B ( ). Aggregate YTD demand— B—is thus 1.3x total primary sup- ply ($43.6B through last Friday, as per data). With local governments more likely to reduce new money bor- rowings (reflecting weak/uncertain budgets) in 2021, and with Congress inclined to worsen tax-exempt scarcity by relaunching BABs, accounts now tactically selling into strength may find their plans have become a strategic reallocation away from munis. Still, noting high yield s flourishing, with exceptional inflows and strong relative performance vis-à-vis investment grade ( ). And while seemingly endless HY lending demand has been a po- tent cure for leaky credit conditions and disrupted build-out schedules, its hypothetical reverse could pose systemic default and impairment risks for the sector. On point: Jan/Feb defaults may hit their highest in a decade in This week, more spread and ratio tightening is likely; ESG- investing may have become a propellent, allowing incrementally broader & deeper muni buying than formerly (at current yields). Also inside: a new by Chris Hamel

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Puerto Rico GO 8s of 2035 Eval: 1-year History

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Largest Bank Net Buyers of Municipal Securities in 2020 $B)

Western Alliance Bank (AZ) Industry Bancshares, Inc. (TX) First Merchants Bank (IN) First American Bank (IL)

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U.S. Bank (OH) Silicon Valley Bank (CA) The Northern Trust Company (IL) First Republic Bank (CA) Bank of New York Mellon Corporation (NY) Bank OZK (AR) First Financial Bank (TX) Morgan Stanley (NY) Pacific Premier Bank (CA) Bank of Montreal (IL) Heartland Financial USA (IA) Simmons Bank (AR) Woodforest National Bank (TX) Pacific Western Bank (CA) Commerce Bank (MO) Southside Bank (TX)

Muni Securities Added in 2020

Pre-2020 Securities Holdings

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$0 $1 $2 $3 $4 $5 $6 $7 $8 $9 $10 $11 $12 $13

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2/16/2021

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