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TOUGHER YEAR AHEAD FOR U.S. MUNI MARKET – BARCLAYS (1215 EST/1715 GMT)
After a “very strong” 2021, the U.S. municipal bond market faces a weaker 2022 as fixed-income assets grapple with high inflation and possible rate hikes by the Federal Reserve in next year’s second half, according to Barclays analysts.
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The $4 trillion market where states, cities, schools, and other issuers sell debt has gotten a boost from massive federal aid and the economic recovery from the COVID-19 pandemic.
“Nevertheless, we are a bit concerned that the peak in credit quality may have already been reached, helped by federal funding that is unlikely to be available in the coming years, while spending has increased to its record and it might not be easy to curb it when additional funds are not available,” the analysts wrote in a credit research report.
They added that they don’t see much potential upside next year despite an outlook for market technicals remaining largely supportive and with municipal credit currently in “very good shape.” Ratios between tax-exempt munis and taxable U.S. Treasuries, as well as credit spreads, are expected to move somewhat higher in 2022, according to Barclays.
“We therefore expect municipal returns to be subdued next year, when investors will likely be happy just with earning carry on their bonds, if that,” the report said.
(Karen Pierog)
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UTILITY SHARES GET THEIR POWER ON (1130 EST/1630 GMT)
As Omicron concerns have made investors more wary they’ve been buying bonds and taking a keener look at more defensive stocks, causing sleepier sectors like utilities to wake up in a hurry.
The S&P Utilities index (.SPLRCU) gapped up today for the first time since Oct. 19, and is last up nearly 2.5% on the day and on track for its biggest one-day percentage gain since early March.
If it holds its ground for the session, it would also post a fourth straight day of gains for the first time since early July.
Within the sector there isn’t a single stock in the red so far on Monday, with the biggest gainers Southern Co (SO.N) and NRG Energy (NRG.N), both up more than 4%.
Of note, the recent decline in U.S. Treasury yields may be helping to boost the sector. The U.S. 10-Year Treasury yield has declined nearly 30 basis points over just eight sessions, putting it in the 1.40% area.
Meanwhile, according to Refinitiv data, the utilities sector boasts a 3.1% dividend yield, potentially making it an attractive…
Read More: LIVE MARKETS Tougher year ahead for U.S. muni market – Barclays