Market Commentaries
The Magic of 34
January 2018The “Magic Square of 34” appears in the upper right side of Albrecht Durer’s 1514 copper plated masterpiece, “Melancholia.” The allegorical work is the subject of many interpretations. One interpretation asserts the scene depicts the age of Humanism, both its creative successes and unsolved frustrations.
Tax Reform and Its Impact
December 2017Tax reform largely left the municipal bond market intact, though a bit squeezed, and it remains an attractive space for individual investors. We are satisfied with the outcome and are also grateful as American citizens and taxpayers that Congress largely left the market unhindered in its ability to fund the bulk (~75%) of our nation’s infrastructure.
Oakley Union Elementary School District
November 2017General Obligation Bonds, Election of 2016, Series 2017A The Bonds were upgraded to AA- from A+ by S&P in coincident with the issuance. The Bonds were issued to finance a capital improvement project, and are payable from unlimited ad valorem prope …
Market Review – Fall 2017
November 2017Bond yields have remained range bound over the past four months. Through the first two months of the third quarter, bonds continued their rally. The 10-year Treasury started the quarter yielding 2.31% and by 8/31 had fallen to 2.15%. Yields reversed co …
Natural Disaster: Event Risk in Today’s Municipal Market
October 2017The tragic storms over the past months highlight the concept of “event risk” investors face while investing in the municipal bond market. Event risk is a term more closely associated with the stock or corporate bond markets, where an underlying credit can be significantly impacted on a short term basis by an unforeseen event. Substantial credit deterioration in the municipal market traditionally resembles a slow moving train wreck (e.g. Detroit, Puerto Rico, Hartford). That said, events like Irma, Harvey, and Maria can create massive shocks to the system, potentially impairing fiscal balances enough to create distressed credits from an otherwise healthy or stable state. What can we learn from such events and their impact on the municipal market? Also, how does sound credit analysis account for such risk?
Market Review – Summer 2017
July 2017The second quarter was a wild ride for the 10-year U.S. Treasury note. The 10-year started the quarter yielding 2.35%, rose as high as 2.41% and fell as low as 2.14%. It finished the quarter at 2.31%. The 2-year U.S. Treasury dropped 14 basis points (0 …
Throwing the Baby Out with the Bath Water?
July 2017As of this writing, the State of Illinois began its fiscal year (July 1) without a budget for an unprecedented third year in a row. Sunday evening the Illinois House of Representatives approved a $36 billion spending plan that increases personal income taxes to 4.95% from the current 3.75% level and the corporate levy to 7% from 5.25%. If the Senate, which approved a tax hike last month, concurs on the House bill it will be presented to the governor for consideration. He has stated he will veto both the House and Senate spending bills as currently written.
The Cost of Waiting for the “Right Hand” of Cards
May 2017The post-crisis monetary policy reaction pushed interest rate markets into unchartered waters of zero interest rate policy (ZIRP). We have all become somewhat deadened to this reality over the last handful of years as monetary policy has led to heightened market valuations, paired with one of the longest periods of economic expansion (93 months) in our economic history.
Market Review – Spring 2017
April 2017The post-election bond market volatility that occurred during the fourth quarter of 2016 continued into the first quarter of 2017. The 10-year AAA MMD index reached a low of 2.14% on January 18th and topped out at 2.49% on March 14th. The difference be …
Vexing Bond Market Questions
February 2017This chart demonstrates the volatility of the 10 year U. S. treasury bond since the beginning of 2016. This volatility causes anxiety for many and understandably leads to several questions: Will long term bond yields increase as the Federal Reserve Bank increases its overnight lending bank rate? Should one invest in bonds now or wait until rates rise further? What is a proper equity/bond asset allocation given this volatility? These are pertinent questions and are often posed to our Investment Specialists and Portfolio Managers during the course of a week
Market Review – Winter 2016
January 2017The election of Donald Trump surprised many and sent bond markets into a market frenzy. On the day before the election, the 10-year AAA rated average municipal yield was 1.73%. By the end of November, the yield jumped to 2.51%. This 78 basis points jum …
Year of the Rooster
January 2017By Jeffrey D. Irish We wish you a healthy, happy and prosperous 2017. We thank our many clients and friends for your continued confidence and belief in the Bernardi team, our processes and the way we approach investing in today’s volatile bond market. …
Municipal Pension Liabilities: Between a Rock and a Hard Place?
October 2016By Matthew P. Bernardi Municipalities have done an excellent job since the financial crisis in stabilizing their finances and have pulled a number of levers to reduce fixed costs. Today’s low growth environment calls for prudent management and the aver …
Market Review – Fall 2016
October 2016Market Update: Fed fund futures priced in a low probability of a September rate hike and the Fed did not disappoint by holding rates steady. The municipal market saw yields drift higher for the quarter as the Fed fund futures market show an increased p …
Market Review – Summer 2016
July 2016Market Update: Municipal bond yields decreased during the second quarter with AAA 5-year, 10-year, and 20-year yields falling 21, 37, and 49 basis points, respectively. Yields dropped dramatically after the United Kingdom (U.K.) voted to leave the Euro …