HilltopSecurities: U.S. Municipal Bond Market President Trump Tests Positive

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Summary

• President Trump tested positive for COVID-19 yesterday. This may create questions about the path to the November 3 elections.

• Something has changed in the pre-election landscape, and we will see if it is enough to move the Senate up and House down, and allow for a fifth phase of COVID-19 relief to finally be finalized.

• The House and White House reported to be closer to a relief agreement on Friday morning. We believe mindsets will need to shift in order for the Senate to get on board with a COVID-19 relief plan that is between $1.6 and $2.2 trillion. As of now, it still seems the Senate is very far apart from anything the House and White House may agree upon. The House session ends today, and the Senate will be in Washington until the end of next week.

• With a last look at monthly labor market data before the election, the U.S. added 661,000 jobs in September, and the unemployment rate fell to 7.9% from 8.4%, according to Bureau of Labor Statistics data reported Friday morning. This number fell short of the market expectation of 859,000. This data point could support the argument that the economic recovery from the COVID-19 shutdowns is slowing.

• The 20 straight weeks of consecutive flows into municipal mutual funds was snapped this week as investors pulled $775 million from municipal funds, per Lipper data reported yesterday. This falling demand comes at an inopportune time as issuers are continuing to blanket the primary calendar with financings. There is $12 billion currently scheduled to come to market during the week of Oct. 5. We have been writing for several weeks about the fact that demand seemed to be slipping. Now, it may be difficult for the market to absorb newissue activity without yield concessions, especially for non-premium grade type credits.

• New York State and New York City (NYC) were both downgraded by one notch to Aa2 by Moody’s yesterday because of the continuing impact from the COVID-19 shutdowns. The rating agency highlighted that NYC faces a longer road back to normalcy than most other major U.S. cities. The outlook for NYC remains “Negative,” according to Moody’s.

President Trump Tests Positive on Oct. 1, 2020

President Donald Trump and first lady Melania Trump tested positive for COVID-19 last night. There are now 31 days until the Nov. 3, 2020 elections. The president and first lady already quarantined themselves, even before the positive result because of a recent exposure to Hope Hicks, who reported she tested positive and rode on Air Force One with the president.

Typically, it would be expected that someone who tests positive for COVID-19 would isolate for 14 days. This would be impactful with just a little over a month left before the presidential election. Currently, President Trump is only experiencing mild symptoms and is still working. World leaders recovering from COVID-19 is not unprecedented, as British Prime Minister Boris Johnson, recovered in May after a serious case.

25th Amendment to the Constitution

We are likely to read much about the 25th Amendment to the U.S. Constitution (the 25th) on the topic of Presidential Disability and Succession in the coming days and potentially weeks. The amount of focus on the 25th is likely to depend on the severity of the president’s symptoms. If symptoms worsen, and if the Vice President is involved as well, there is the potential for a succession dispute. Considering that we have expected there could be some election-month issues (even before this news, as we wrote in our Sept. 29 commentary Election 2020: Results Will Impact the Economy, Markets, and Municipal Bonds), it is not likely that a succession dispute is going to be remedied as it was during Watergate when Democrat House Speaker Carl Albert said he would appoint a Republican vice president and step down as president. At this point, serious discussion about scenarios such as this are mere speculation.

The Senate Will Need to Move Significantly For COVID-19 Relief to Become a Reality

The U.S. House of Representatives passed a $2.2 trillion updated HEROES Act yesterday after talks with the White House were reignited during the week. This was considered a poor sign on the status of the negotiation because the White House only came up to a total amount of $1.6 trillion. As of Friday morning, Speaker Pelosi reported that discussions with the White House were getting closer on COVID-19 relief. She went so far as to say that she expects “a bipartisan bill. That’s our goal to have.”

Let’s not forget that this reporting is based on numbers that are much higher than anything the Senate has indicated could be passed. In recent weeks, the Senate has been closer to a $1 trillion number, and that would be at most. A slimmed down Senate relief version was only $500 billion. Maybe there is something that changes the landscape as a result of the president’s diagnosis. We believe mindsets will need to shift in order for the Senate to get on board with a COVID-19 relief plan that is between $1.6 and $2.2 trillion.

As of now, it still seems the Senate is very far apart from anything the House and White House may agree upon. The House session ends today, and the Senate will be in Washington until the end of next week.

Tom Kozlik
Head of Municipal Strategy & Credit
214.859.9439
[email protected]

Recent HilltopSecurities Municipal Commentary

Election 2020: Results Will Impact the Economy, Markets, and Municipal Bonds, September 29, 2020

How Long Will We Work From Home?, September 25, 2020

Rush to Market Continues, $14 Billion of Municipal Issuance Coming Next Week, September 18, 2020

“March to Common Ground” Bipartisan Proposal Calls for $500 Billion for State/Local Governments, September 15, 2020

Municipal Issuers Rushing to Market Before Election “Month”, September 14, 2020

Watching How U.S. Fiscal and Monetary Policy Impacts the Municipal Bond Market, September 8, 2020

In a K-Shaped Recovery, Governments and Non-Profits Could Be Among Those That Fade, September 4, 2020

Hotel California (Such a Lovely Place), Unique Tax Policies Under Consideration, September 2, 2020

State and Local Aid is Key Roadblock, Says COS Meadows, But Offers $300 Billion, September 1, 2020

Readers may view all of the HilltopSecurities Municipal Commentary here.

The paper/commentary was prepared by Hilltop Securities (HTS). It is intended for informational purposes only and does not constitute legal or investment advice, nor is it an offer or a solicitation of an offer to buy or sell any investment or other specific product. Information provided in this paper was obtained from sources that are believed to be reliable; however, it is not guaranteed to be correct, complete, or current, and is not intended to imply or establish standards of care applicable to any attorney or advisor in any particular circumstances. The statements within constitute the views of HTS as of the date of the document and may differ from the views of other divisions/departments of affiliate Hilltop Securities Inc. In addition, the views are subject to change without notice. This paper represents historical information only and is not an indication of future performance. This material has not been prepared in accordance with the guidelines or requirements to promote investment research, it is not a research report and is not intended as such. Sources available upon request.

Hilltop Securities Inc. is a registered broker-dealer, registered investment adviser and municipal advisor firm that does not provide tax or legal advice. HTS are wholly owned subsidiaries of Hilltop Holdings, Inc. (NYSE: HTH) located at 1201 Elm Street, Suite 3500, Dallas, Texas 75270, (214) 859-1800, 833-4HILLTOP

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