Gene Seroka, CEO at the Port of LA, joins us in studio to discuss the latest developments on the supply chain. Build America Mutual CEO Sean McCarthy joins us on site to discuss BAM’s services and outlook for the municipal bond market. Bloomberg News Wall Street reporter Eric Kazatsky, Senior US Municipal Strategist with Bloomberg Intelligence, and Chris Brigati, Managing Director and Senior VP of Municipal Investments with Valley National Bank, join us on site for a roundtable on the municipal bond market and investments to look for in 2023. Glenn McGowan, co-head of municipal underwriting at RBC Capital Markets, and Kevin Danckwerth, head of municipal trading at Citi, discuss the outlook for cities, municipalities, and the muni bond market heading into 2023. Jennie Huang Bennett, Chief Financial officer for the City of Chicago, joins us on site to discuss financing a major economic hub like Chicago and plans for the city’s financial management post-pandemic. Hosted by Paul Sweeney and Matt Miller.
Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside my co host Matt Miller. Every business day, we bring you interviews from CEOs, market pros, and Bloomberg experts, along with essential market moving news on the Bloomberg Markets Podcast, on Apple Podcasts or wherever you listen to podcasts, and at Bloomberg dot com slash podcast supply chain. It's been one of our favorite topics to talk about during in the last several years. Boy, it got ugly there towards the beginning of the pandemic um, but now it seems to be getting better. And we talked to Jeans Siroca. He's the CEO of the Port of l A. He always gives us a good sense of what's going on there because the Port of l A is huge and particularly coming from that Asia trade. Gene, thanks so much for joining us here. Um, give us a sense of how that things are at your port, how many ships are waiting in harbor, how's the port itself, the railroads, the trucks, what's your dashboard looked like, how's it all playing out? Good morning, Paul, and that the backlog is it's in Los Angeles effectively left us back in August. We all left five of the first seven months of the year going box for box with that all top number. In two thousand one, we had the peak season come in early June and July. We're are best on record in a hundred and fifteen years. Then the next porter has got a little bit nervous ongoing dock workers in negotiations and shift the cargo to the east into Gulf Coast. We've got about late capacity today. So so what does shipping look like right now? I mean, we're getting into the holiday season, right the pandemics over for the western world. Are we seeing um, you know, peak traffic right now? Are you expecting to get busy this month? No, I don't think. Again, a little bit earlier that that traditional import and export manager didn't want to get into the teeth of supply chain and port congestion all over again for the third year in a row. They were a little conservative, hedged Brock cargo in early to pad those transit times, to make sure indoor states were realized and make sure they stayed away from any potential labor disruption which was not going to happen. Both the employers Association and the dock Workers Union put out two joint media releases simply stated they won't strike and they won't walk out labor. Yet that's been tough to convince the American cargo owner. Hey, Jean, we're hearing reports really over the last several days that finally Japan. I mean, I'm sorry, China maybe reopening here. I've maybe in response to some of the protests, but if China is really going to reopen, how do you guys kind of you know, get ready for that, because that my sense will be there a lot more sailings and coming out of China. Maybe possibly, But we never saw the precipitous drop that some observers called for, even with the third and fifth waves of COVID variants or the shutdowns that really clamped down on my old hometown of Shanghai. Full were months on end the central government and ports, specifically the Young Shan Deep Seaport in Shanghai, prioritize their long haul cargo. That meant that our goods were gonna come in unabated. We saw a little bit of a dip, a little pick up, and obviously there were examples of what the lockdown meant a subassembly, manufacturing and transportation, but no real impact. I don't expect a crush of cargo coming our way either because of this reopening. No. Yeah. In fact, Bloomberg Business we put out a story and they have indicators for each port at the port of l a Um, Singapore, Hong Kong. All blow normal right now, which is strange, I guess with unless you consider the fact that everybody is looking towards a recession and there's a war um waging in Eastern Europe. Do you expect a pick up in three um? Do you think we need the war to and what's the story there? Well, there's a lot that's got to be fixed overall. Again in the supply chain, every day something happens that gives us pause or creates an ability for us to pivot and move forward. I read the article this morning coming off of the supply lines email that I get every day. Realistically speaking, what we see right now is that you had in the US, you had a lot of inventory and it was mismatched with us as consumers. Folks started buying just in case, no longer just in time. The warehouses in southern California, of which we boast two billion square feet are still filled to the gills. So this time of holiday season, trying to push out all of that excess inventory, in many cases at discounted levels and have a reset at the beginning of the year for a more normal omni channel distribution and proturement network. Seems to be what we're looking at right now. But again, folks are wringing their hands. Is it recession? Interest rates going up? With said due next There's a lot on our plate in that economic equation. All right, Jean, good stuff. As always, we always appreciate getting your thoughts here. Jean Stroka. He is the CEO of the Port of Los Angeles, giving a sense of kind of how things are going on supply chain route as we We've been talking to Jean all throughout this pandemic. We're all in on reading the billboard for Bild American Mutual and we're down there at their headquarters with with the CEO, John McCarthy here the CEO and Sean. Before we get into it, I just want to tell you a little story about Paul, my co host here. So he started in UH financial Services on Wall Street like the day after Black Friday in right great timing. And he's of the generation that wanted, you know, big paychecks and worked, uh you know, wake until sleep to get them. Um, no other life besides Wall Street and earning money. I asked somebody did with this first bonus because I figured most people like take their first bonus and go buy a roll lex or something. He bought Muni's very smart, exactly. Clipping coupons is what he does on the weekends. He just sits by the pool and clips his coupons eggs and it's been it's been a good ride. Build American Mutual, Sean, thanks so much for having us down here and your lovely offices down here in tour the Liberty Street. What do you guys do it? Build American Mutual? So we are municipal bond ensure. We're double A rated by standing in ports, and we guarantee, so you ensure municipal bond issuers. We don't you think of it this way. It's a little like if you have a child who's gone to college takes out a student loan. You want him to get a job, you want him to pay it back, but if he doesn't, you're on the hook because you've co signed the loan. Think, Okay, what what we're doing is we're guaranteeing to make sure that timely payment of principle and interest when due. For the investors, well, I know where my guys sleep at night, so if they don't pay anywhere to find him talk to us about the municipal bond market. Um, just today, it's been such a rough year for fixed income, double digit declines across the entire fixed income space. Talks about the musical bond market. So I think right now it's a tale of two markets. Uh. This year, there was a hundred um uh billion dollars of outflows from the municipal market in the first part of the year, and that's really a transition from very low interest rates of last year in the beginning of this year to hire interest rates now. And so what we're seeing at this moment as a re entry of municipal investors back into the market. And I have to think, what does the municipal market do. It finances eighty percent of essential infrastructure. So when you think about infrastructure, it's state and local governments that are financing that. There are right now four trillion dollars of municipal bonds that are outstanding, and and and of that, if you just try to put a sense for whom who buy? Who are the issuers there? They are state and local governments. They're fifty thousand individual issuers state and local governments, which means that there are you know, about five times the total number of different issuers than there are in the New York Stock Exchange in the NASTAC put together. So it's a huge mark it but it's also one that is traditionally very staid. Right. Um, towns and cities are gonna always have financing needs, They constantly need to issue debt um and they rarely default. And then when you step in and ensure their bonds, investors can be sure they're not going to default or if they do, you know you'll catch them fall. So um, that's a hunder percent, right, I mean, really, what we're focused on is, uh two things. Essential public purpose is state and local governments issuing for hospitals, bridges, tunnels, roads, um, and and that they don't default often. But what we're doing is three things, credit default protection, greater liquidity for those municipal bonds, and greater price protection. So those bonds traded a more stable level. But what I'm getting at those there's typically not so much volatility. This has been a very odd year for muni's, right, has been for the whole market, But traditionally muni's trade a little bit differently than definitely corporate debt and even treasuries. That's correct, UH, and that's really because if you think about who are the buyers of municipal bonds, it's households. It's mutual funds that represent households. So it's people who are buying UH bonds that have a long UH maturity, and so they're doing that for their portfolios for greater stability and and less volatility than other potential investments like equities. So during this pandemic, we've seen coming out of Watchington a big infrastructure bill, and I'm guessing a lot of that's got to be financed in the municipal bond market. Have you started to see activity tied with that at all or is that something still to come. So I think the past at one point one trillion dollar package, but the bipartisan bill, and I think what's going to happen in the municipal bond market is a lot of those programs are match funded. So if you think about if you're gonna borrow to repair your roads and it's repaired just as much as build new things. If you think about really what's going on UM from New York City, well, they's an opportunity. Yeah, So if you think about how much UH gets to be invested UM, the federal program is a matched fund program, so that if you want to borrow fifty million dollars from that program, you're gonna issue fifty million dollars worth of municipal bonds in order to make that project a reality. And so right now that money has been approved, it's now just starting to roll out into the market. And so my our estimation would be that that that activity will really take hold in the next couple of years. But this means so I have always thought or or this year, you know now that these municipalities are so cash rich, maybe they don't need to issue as many bonds. But you're saying that a lot of that money came with issuance UH concurrent. So think about it this way. What's happened this year, particularly for for volume is UH. It's about three hundred and sixty billion dollars volume of issuance this year, Um, they're virtual. No refinancings, so normally about the market or refinancings. As interest rates have gone up, refinancings have gone down. But the important thing to remember is that essential projects still have to be built, Existing facilities have to be repaired, and so the market has a steady issuance going forward, and we project that that's going to be the same for the next you know, five ten years. As a former banker, I've always told companies, you know, borrow when you can, raise capital when you can, and not when you need it. But it's not necessarily the case in municipal bond space. There they don't market time. It's is my understanding. They raise money when they need it, correct, you know, So as you look at can you do you have the municipality saying I'm going to issue in three for a bridge that we're building. Did they did they give you that kind of visibility or is it there's a long term process in order to come to the market for for new for large new projects. So if you think about any town, a town in Connecticut, a town in Nevada, when they decided they're going to build a new town hall or they're gonna put in new sidewalks. They go through a planning process, they go through the approval process. Remember these things are paid from taxes at a local level, so they go through an approval process, they design what they're going to build, and then they issue the bonds. In most circumstances, municipalities have a financial advisor that represents them and putting the transaction together, and then they hire an underwriter UM, you know, like City Bank or or Bank of America to uh, you know, bring those bonds to market and sell them to investors. So if you're ensuring an issue, do you guys have to perform credit analysis yourself to decide how much your charge for that? Absolutely. The vast majority of the people you see here are our credit analysts, and so we spend all of our time, our credit committee needs every year, every day think about what's happening. So what we're doing is UM making a credit decision to guarantee the bond. And I think about it this way. Our kind of insurance is unique because we don't you know, there is no waiver. We pay first and then mitigate later so that the investor knows they're going to get their payment when when they expected to get it, and that's fundamentally important to what we do. So our process of not only underwriting the transactions when they come to market, but surveiling them UH is an important part. So we we watch those municipal bond issues um until they mature. And that's something that the investors can take comfort in and frankly, the issuers take comfort in. Historically, have you guys done in terms of losses or just risk from these questions? So we've been in business eleven years. I've been in in the bonding trans business for a very very long time. We have issued a hundred and fifteen billion dollars worth the transactions. We've had no default. I'll take that. So that's some good credit analysts around here. I'm surrounded by these sharp credit analyst guys. Good stuff, all right, Sean, thanks so much for having us here. Sean McCarthy, he's build American Mutual, he's a chief executive officer. We never got to ask about work from home. We gotta talk to him during the break because I gotta know if all these guys came in today just because we're here just to see us to three days a week everybody's in the office. That's kind of where we're rotated around. And that's the thing. And the one final thing I just mentioned is that we're a mutual. So the people who are are stakeholders and own the company are the five thousand municipalities that have taken our insurance. Okay, that's important, that's important. All right, good stuff, all right, Sean McCarthy, great stuff. Built American Mutual Chief a bacont of officer. Bam, there you go, thanks for being here. Let's talk about municipal finance financing big cities, and boy, there's not too many bigger than the City of Chicago. Jenny Kwang Bennett joins us. She's a chief finance officer for the City of Chicago. Jenny, thanks so much for joining us here at the Build American Mutual Offices. Talk to us about the financial situation, the financial health, the financial um, you know, outlook for the city of Chicago. Great city, one of the America's great cities. Talked to us about Chicago. Sure, absolutely, and thank you for having me. Always happy to talk about the city of Chicago and its financial turnaround. Um, you don't have to take my word for it. Although I will speak to some of the financial improvements at the city, but very importantly, the City of Chicago has achieved ten rating upgrades across various credits at the City of Chicago plus two outlook upgrades UM too Positive over the last four months, and it's a demonstration of the financial turnaround that the city is in right now. The upgrades have spanned the city's GEO STSC credit UM, the Airport credit, the water and Sewer credits UH, the o'hared midway credits, and all of that for the first time in six to twelve UM. It's a lot of financial improvement at the city. In particular, the corporate fund credit UM has seen structural balance now UM for the first time in decades. We have climbed a pension ramp that has included one point eight billion dollars and increased UH pension funding over the last three years. And very importantly, we have found a way to do all of that in the midst of a pandemic. And so it's a very important turnaround for the city in terms of all of the financial metrics that rating analysts follow on a regular basis. UM. Very importantly, we've also climbed our debt ramp, which allows us to advertize somewhere between three hundreds of four hundred million dollars in principle a year. UM. That's reduced our overall debt burden by three quarters of a billion dollars UM over the last three years. And by way of perspective, the City of Chicago has twenty six billion dollars of debt outstanding. UM. In general, we are one of the top ten issues and municipal debt in the market. And so UM, it's a there's a There are a lot of financial metric improvements that have occurred over the last three years, in particular during Mayor Lightfoots administration, UM, but also over the course of decades for the City of Chicago that has led to this moment where UM, we're getting recognition across the board by the rating agencies. So no more junk UH debt for the City of Chicago, and you've found ways to make an impact socially right in term of your debt issuance. Yes, absolutely, um, So to your point, Moody's has upgraded us to investment grade, and so now the City of Chicago is investment grade across all of its credits UM. In addition to that, because of the fact that we climbed our debt ramp and because of the fact that we've climbed our pension ramp, cleared our deferred liabilities, were now able to make historic investments in the City of Chicago. UM. There are three main investment plans. There's the Chicago Recovery Plan, which is one point two billion dollars making some of the most historic progressive investments in the city, including the Vacant Law Investment Program UM, Affordable Housing, Fleet Decarbonization UM, so on, and so forth. There's the Invest Southwest Program, which makes two billion dollars of economic development investments in South and West Side neighborhoods, largely low income neighborhoods in Chicago. And then there's a Chicago Works Program, which is our deferred capital maintenance program, streets lighting, UM, typical infrastructure investment. All told that six billion dollars of investments that we're making and UH. Within that, we've selected a number of projects that will make up our inaugural Social Impact Bond issuance, which will be coming UM in the next month or so. So in the last several years, we've seen some big corporate UM residents of Chicago leaves Citadel Boeing talk to us about the challenges you as a city have in kind of trying to attract and retain UH corporate residents. You know, big, big, big companies. Sure, so I would offer that UM, although you know we UM, you know are stating by the loss of those firms that you mentioned in particular UM, the number of jobs impacted our very smallest compared to the total number of jobs that we've increased over the course of the last few years, in particular in the midst of the pandemic. So the city of Chicago has seen a hundred and seventy one pro Chicago decisions, which we define as headquarters UM or corporate relocations that increase their presence in the city of Chicago, and that's created around twenty thousand new jobs and which then themselves creates another thirty thousand jobs. Some notable recent editions includes Google, who has UM add at a new UM facility to their existing facility in the west Loop that will generate thousands of new jobs for the city. Uh kellon UM has announced that they're moving their largest division to the city of Chicago, which is their snack division around the about eleven billion dollars of revenue and then um in addition to that, we also had Kimberly Clark make a major corporate relocation as well as UMU as as well as Discover, who put their largest call center in one of our South Side neighborhoods. Which it like working with Illinois because I'm assuming, uh, some of the Leavers had concerns about the state more than the city of Chicago. Um So, the city of Chicago is the largest economic engine within the state of Illinois, and we provide a lot of a lot of revenue to the state. UM. We did just pass the casino as well, which will generate significant value to the state and to the city somewhere around five billion dollars in total. Um So, there are a lot of ways that we contribute to the state. UM. You know, we also spent a lot of way. There's going to be a casino in Chicago. Yes, there's a new casino in Chicago. It's been authorized. It's roundly about a hundred million dollars a year in revenue to the city. Um uh. And then another um you know, uh, two hundred million or so in revenue to the state of Illinois. Talk to us about the crime situation in Chicago and how what kind of headwinds that presents to the city and kind of what's the administration's planned to try to address that. We have, you know, similarsus here in New York City, but Chicago seems to get a lot of attention. UM So what we're experiencing in terms of public safety trends is not dissimilar from what a lot of other urban areas face. Um you know. We know in the city of Chicago that there has been historic segregation, UM and disinvestment in largely low income neighborhoods. And so that's why one of the um UH investments that we started out with, even before the investment investment plans I just mentioned, um you know, was about making deeper investments in South and West side neighborhoods in order to try to write some of those historic wrongs. What that means by way of public safety is that we're making the investments that create wrap around services that addresses the root causes of violence. So rather than taking a policing approach which we know will have immediate impact but ultimately won't create transformative change for those neighborhoods. We're taking that broader citywide, whole of government approach. What's that? What that's resulted in in the top fifting communities that have over of the crime in the city of Chicago, Dave Steen somewhere between a thirty and fifty percent reduction in crime, in particular by way of homicides and shootings, And so we know the approach is working. UM. You know, we are also working on ramping up recruiting efforts for the police department. In the most recent budget we passed, there was a hundred million dollars of additional public safety investments for UM the police department. In particular. UM there are new cell phones being provided to all patrol officers, who will then UM have a more efficient way of being able to receive calls and understand where calls of service have been, file reports in the field. And so a lot of investment is being made into in terms of both UM direct public safety investments as well as whole government investments to help support the public safety in Chicago. So I think it's interesting that you're not just in numbers, CFO, You're invested in making a difference socially the public schools for the cf OF was the CFO of the public schools. I think one of the most interesting things about municipal finance in general is that what we do is ultimately not just about the numbers, but how the math and the money ultimately creates investments. UM. I said this in a recent speech, where ultimately what we do by way of financial stability is so important because it pays for the investments that we make. And so the point I made earlier about the fact that we've paid down three quarters of a billion dollars in debt and are now paying down our debt to the tune of three to four hundred million a year, those are now investments that we can make through the through the various investment programs at total about eight billion dollars, we are making some of the most historic investments in the City of Chicago without increasing our debt burden. And that's because of the fact that we have financial stability and a way to pay for these investments. Because he knows, by the way, I have long been away of raising money UM for municipalities. Now there's weed, and I wonder what you think about that, because it's legal in Illinois, right, and you must be able to generate significant revenue. Um. Does that some of that go to Chicago or is it all to the state? How's that work? So the majority of the money does go to the state. We do see some of that money, uh come to us for public safety. The amount isn't large, but we do receive some portion of money, UM by way of casinos. Um. You know, it is going to generate significant revenue for our police and fire pension funds. But in addition to that, it's already happening. Um, it's all going to Indiana at this point. And so the Chicago casino we expect will Repaytriot approximately a hundred ninety million dollars of gaming activity back to the city UM, which ultimately allows us to pay for Illinois essential services as opposed to essential services in other states. All right, great stuff, Jenny Wonk Bennett, chief Financial Officer for the City of Chicago, joining us. Live here at our Build America Mutual Headquarters. Maybe we are back in the Build American Mutual Headquarters in lovely Lower Manhattan. I've been I spent a lot of my career down here. There's some good folks down here. We're talking municipal bonds. We're talking muic bond market. We've got some pros here at the table, literally at the round table. Glenn McGowan, he's coheaded municipal Underwriting at RBC Capital Markets and kind of dank head of municipal trading at City. Uh. They're here. They're all in on this municipal bond market. Guys, thanks so much for joining us. Really appreciate it. Glenn. Let's just start with you, Um, what are municipalities doing? Are they? Are they active this year? I mean, there's been such a brutal year in the fixed income markets. But what have your clients been telling you about maybe their appetite for getting into this market. Yeah, sure, Paul, good, good question. I would say that, you know, in general, it's been a very light year in terms of supply. You know, we're coming off of the lightest month of November since n and you're to date issuance right now right around three hundred and sixty billion, that's down about eighteen percent year over year. And I think, you know, for a good chunk of this year, governmental issuers were indicating that tax or ce were strong and a fair amount of federal aid was still sitting on their balance sheets, and so the need to access the capital markets was was reduced. And I think you have some other sectors that have been accessing capital and in different formats. A lot of healthcare issseurs have been resorting more to private placements. And so the net effect of that, and when you think about the increase in interest rates over the course of this year, you know, you've had less taxable refunding activity. The net result of all that is a significantly lower pace of issuance over the course of this year. So, as I mentioned about three hundred and sixty billion of total issuance, what's interesting is if you net out about twenty one and a half billion of private placements, you know, you're looking at about three hundred and thirty nine billion of publicly issued municipal bonds so far this year. Was that compared to you know, the the pace of privates is fairly consistent with last year. I think it was about twenty two billion or some. I mean overall, what were you seeing in one or if we saw three sixty this year, is that a lot or a little? Yeah, it's it's it's a little. We were in the kind of mid fours in the last two years for sure, And so as we project ahead to next year, you know, with this interest rate environment being I think fairly consistent, and you can certainly build a case that as the Fed eventually wraps up its tightening process in the first quarter and the first quarter of next year, UM, you know, and and with economic growth expected to start to move into some sort of a recession, that you could you know, you could make a case pretty easily for marginally lower rates by the end of next year. But we're anticipating a pretty consistent pace of issuance as we move into next year. So a little scarcity there. You run Glenn Underwriting at RBC, having you run Muni Trading at City, what does that scarcity mean for your business? Thanks for having me a great question. Uh, you know, the primary supply being lower has certainly I think helped to mitigate some of the challenges we've seen in the market this year. UM. The main uh headwind for us really has been the mutual fund outflows that have really been UM consistent throughout the course of the year. We're going on. UM. I think it was forty four weeks of consecutive outflows out of mutual funds UM, which UM you know has certainly uh provided a head wind. UM. So the fact that there hasn't been a huge primary acclendar to kind of compete with the selling that mutual funds have had to do UM has helped the secondary function probably a little more smoothly. Why are those outflows happening? Is it tax loss harvesting or are people converting to E T F s U great question. I think you probably have to dimension a little bit beginning of the year versus now. I think initially, uh, you know, January, February, March April, I think it was driven largely by uh, inflationary concerns. I think UM a FED that was hawkish than it had been in quite some time. You know, you had Chairman Pale throughout one saying that inflation was transitory. UH. It was pretty clear early in two that was not the case, and he really dialed up the hawkish DRICK. So I think earlier in the year it was a function of fear more than anything just rising rates. UM. I think as we've transitioned later in the year, I think you're probably seeing more of that tax laws selling, UH, some of that money is probably going into e t f s as you mentioned, I think some of that's probably also going into direct retail. You just buying municipal bonds direct off the screens because you know those those securities are offering significantly more yield than they've offered him quite some time, especially on the longer end of the curve. Hey, Glenn, tell me about the underrating side of the business. Do your bankers sit at there in their offices and pick up the phone when a municipality says I need to build a bridge, or are you guys out there pitching business. Do you go to, like, I don't know, the city of Camden, New Jersey and say, boy, you guys need to pay of your roads. Here's a bond. So I would say that most of the bankers that that we know, and most of the bankers that the large firms are out pitching constantly, and it's it's not really just about trying to find the next deal, but trying to be thoughtful about, you know, their client subjectives. In the context of the capital markets, where can you finance infrastructure? Where can you build out a hospital project? You know, how can you manage your your obligations to the public and provide the goods and services that are necessary in the context of the market. And so you know, most of the bankers that we work with are are constantly you know, out coming up with ideas, pitching those ideas to clients and their advisors. Uh. You know, but I think there's a certain subset of the issue where base right now that just doesn't have as much need for capital. Now that could change as we head into a rocky economic environment next year. Um, you know, And I think you can also make a case that with gridlock in Washington, d C. Split control of Congress, you know, we're probably not going to get much help out of the federal government in terms of financing infrastructure. So that could be another area that may be you know, shouldered by state and local governments in terms of needing to Kevin, I'm a big trader of municipal bonds. I've got a huge portfolio. I need to unload some city of Cherry Hill bonds. I come in to your trading desk. What kind of market you can make for me? You get liquidity to really step up and get my trade done? Oh yeah, absolutely, it's this Cherry Holl New Jersey, Yeah, Jersey, So yes, absolutely for Cherryhill. Uh yeah, we um, we take a lot of risks in the municipal space. Are balance she you know, generally speaking, UM runs well in excessive a billion bonds. So um, we're active on a daily basis, UM, whether it's the kind of microlot space ten twenty pound pieces all the way up to block size tens twenties and uh you know, so we are. We're in the market, we're active and um, you know it's been it's been a fun year to trade. Frankly, volatility makes things a lot more interesting. Yeah. Absolutely, So what's next year look like? I mean, after the ridiculously terrifying screens that we had to look at all year, you know, I end go on the Bloomberg shows, the massive losses all the way across fixed income, UM, is next year better? I think so? Personally. I mean, you know, when you look at the muni market, it's actually been been pretty stable overall since about May of next year. UM, So the first four months or so it was really um where the vast majority of the pain took place, and and the meaning market the one thing it's it's pretty good at, is it can adjust pretty violently to get to valuations at which people are going to step in to buy it. And and that's really what I would say happen in April May as we got to yield levels where you know, you could buy longer dated paper twenty to thirty year final maturity usually ten year calls double ayer better rated, uh anywhere from a four to four and a half yield, which you know, if you're in a high tech state like New York in a high tax bracket, you know you'd be talking about taxable equivalent yields of eight to nine percent even in lower tax states and uh you know, um lower tax brackets that you're still talking five and a half to seven and a half percent on a taxable equivalent basis for super high quality assets. You know, that's a pretty compelling return for for retail investor. Football your ball, your bond still getting called uh no, not as much, but they were getting because this summer you were like crying about it every day. I mean, you know, and then I got to go to the block desk at city. I'm not going to the retail desk to move my moon. Um so Glenn Infrastructure Act. It was like a jillion and one dollars. How do you guys think about that as a strategy for the next couple of years in terms of talking to your clients, Presumably they're gonna be having opportunities to fund maybe more projects than they thought. Yeah, I think the burden of financing public infrastructures, as I mentioned before, we're gonna be shouldered more and more by our issuer base. I have been a little bit underwhelmed by some of the provisions in the various legislation that's passed in terms of what it's done for the municipal bond market. Simple things that could have provided relief valves for our issue where base tax exempt advance for fundings that never really happened. Uh, you know, a reintroduction of the BABS like program never really happened. And so I think the burden is going to continue to be shoulder by our issue where Base. I think that could you know, lead some to conclude that maybe you see an uptick and issuance, but are our thought for next year is kind of a stable billion dollar type of total supply type environment. It's hard to see in this economic environment, in this rate environment that dramatically changing, at least in our view. How do you work with BAM. By the way, when you're talking to an issuer, um, how do you partner up with the two of them? Sure, so you know, BAM provides credit enhancement for our issue where base and so the net result there is issuers purchasing insurance in the new issue market to buy down a lower yield. We also use it in the secondary market sometimes we have investors that want to ensure a bond, whether it's for a portfolio defense strategy or for a for you know, for more tactical trading strategy. So we're frequent counterparts with BAM and the new issue market. In the secondary market, it's all about trying to find value for credit enhancement and we've been pretty active in that regard. All right, folks, thanks so much for joining us here. We had Glenn McGowan, co head of Municipal Underwriting an RBC Capital Markets, and Kevin Dankworth. He's had a municipal trading at City. Has to be just a joy of a day for you. I mean, we're doing nothing but municipal bonds, no cars, you know, none of that crypto stuff we're talking munsiccible bonds. But it's honestly, it's heaven for you, isn't it It is? It's great. All goes home and he just swims in the pool full municipal bonds. He's been building it up ever since he was a little kid. The first thing he asked for for Christmas. I wanted a red Rider BB gun and Paul wanted municipal bonds and the coupons that I can clip. Eric Kazaski joins his He's senior US missible strategist. He's here at Bloomberg Intelligence. Chris Spergotti Managing Director and Senior VP of Municipal Investments at Valley National Bank. These guys are live here at the Build American Mutual headquarters here in Lower Manhattan. Eric, thanks which and uh, you know, Chris, thanks so much for joining us here. Eric, man, you guys have had a brutal year in municipals. Maybe not as bad as some other spots and fixed income, but assuming clients actually pick up the phone when you call, what are they saying about three? Well, I think they're excited based on the last thirty forty five days, right, We've had four and a half five percent returns. But I think the real spot high old Muni's almost six and a half returns over the last thirty five days, pretty good start to head into three and there's a little bit of runway there for a positive performance. How does high yield munies work? Are they still backed by Build America Mutual? Because I feel safe in case you should feel safe. But I think that there are probably things that maybe like some of the insurance companies really don't want to touch because there's a lot of hair on some of these deals. Look take American Dreams Mall, for instance, right tapping into the reserves once again. At some point they're going to run out of reserves to tap right, But that means more risk, more spread for investors who are willing to sort of wait in there. I've still never been there. Our next remote we have to go to the American dream Mall. When when you look at um A bond and and issuance, what do you guys look for, Like, what's your criteria? Typically? I mean generally what we're doing is sticking to the higher investment great stuff. For most of the things that we do, we're looking for something that's liquid enough that we can turn around and get some velocity in terms of selling it and trading and generating a little bit of revenue in the short term as well. It ultimately comes down to quality qualities. Job one. You know, keep it liquid, keep it something people will be willing to put their money into and feel safe about. Um. If we kind of step out into the uncomfortable land of high yield, sometimes it gets a little sketch here and it's a little bit of a different trade, which is fine. You just got to kind of be aware of that and know what you're doing. So you're at Valley National Bank, Lovely Wayne, New Jersey. Do you fight missial bonds like all over the country or yes, yes, your National National. We don't care where. We just happen to be located in Jersey. Okay. So, and when you look at a bond out there, I mean does that have to have a certain rating, does that have to have a certain criteria or I mean it's something they're insured. Yeah, it helps definitely. Like like when when I look at a company, if I want to do business with it, I I spent a lot of time with management, for example, But you don't necessarily do that with bond. You just kind of look at the ratings some financials. Rings. You look at some financials, you want to do a little deep dive and understand where the revenues are coming from. Is it a geo what is the what is the collection has been on a geo debt with regard to tax is uh in the past two year period. For argument's sake, it's looking at the sales tax revenue. How do those sales Texas collections look? You know, you kind of look through and read through debt coverage ratios, kind of some of the boring stuff that's lessening. I mean, we just talked to Jenny Wong Bennett. She's the CFO for the City of Chicago, and previously you would have been like, okay, Um, Illinois like the most corrupt state in the entire country, even giving New Jersey a run for its money, right, and um, all of these businesses are just moving out like gangbusters going down to Florida, are going um to other states? Who who who? I moved out? Bowing and yeah, but a bunch of moving back in. So yeah, and now it's starting to look good, at least from what we hear uh from Jenny. Um, they're just climbing back up the ladder. They don't have any junk anymore. So do you like Chicago? I like it for a trade. I don't like it for a longer term. I'm still worried about the pension situation there. There there pensions. They've they've righted that ship. There's some challenges down the road they can still occur. Um. I think they weathered this tour very well with getting money through COVID from the federal government. Um. But that train is gonna stop arriving at the station and they've got to make sure that they got their ducks in a row. Isn't that this case with every major city? Don't all gigantic cities have huge pension of the underfunded pension obligations. Look, and we're just seeing this right outside of Philadelphia. City of Chester, right, they just declared bankruptcy because of their pensions. But I think that's sort of more the not the norm. You know, Chris is a little worried about Chicago. I'm less worried. I think they're going to figure out a way to keep kicking that can down the road, and it's gonna be something we're still gonna be talking about thirty years from now Chicago. It's Illinois. Eric, we had a big infrastructure plan not too long ago, like a gazillion dollars. I think is the cf a term. How does the unicipal bond market the investors that you talked to, how did they think about that? That? Is there a play there's or a trade there. I think there's a lot less refinancing, a lot less refinancing. And I was gonna say, it's all rates driven, right, doesn't matter like how much infrastructure money is floating around. Right, If the markets aren't cooperative and rates aren't cooperative at the time to jump into the market, those plans are going to get put off. Fun that's sort of a cooking, you know, taking time for the federal government subsidies to sort of flow through to the cities. But we're not seeing that right now. So you know, as I think about the municipal bond market, I mean it's I think it's a pretty consistent market, lower risk. But then you taught me about this taxable high yield market. How do you invet you invest in a taxable high old market. Not so much in the high yield. We were generally in the higher grade in terms of taxable market. It's it's an up and coming market. I mean, it's really kind of expanded. It's gotten much bigger in the past several years. We had appeared in two thousand and ten where the Build American program really kind of brought a lot of attention to it and that was really kind of cool and really exciting to kind of get involved with, and a lot of people kind of benefited from that. And now we're seeing the follow on effects of way down the road that it's actually a market people are starting to pay more attention to. But Eric really still has to sell you on it, like Chicago. Oh yeah, So Eric, what's what's kind of as you I know, you have Bloomberg intelligence. You guys are all either having written or are eating outlooks. What's some of the key takeaways from your outlook? I think that you know, Muni's are done sort of getting beaten into the ground for the time being. And I know that's probably not the most technical of c f A terms, but uh, you know, like you said, it's been a brutal ten months eleven months, and I think the tide is really getting ready to turn here. We're constructive on credit state and local governments. They have a lot of money in their coffers still, uh, and tax questions are still strong, you know, whether the economy tips into a recession or not. I really think that's sort of beyond the point because they have the ability to raise taxes, right, So unless you're you know, in dire dire straits financially, I understand it's unpopular, but they can still do it, right yeah? Yeah? Um, So what matters more than where the economy goes or what the Fed does in terms of rates? I think rates right now because we're a supplying demander of the market, and if you're keeping supply on the sidelines right, you're you're going to impact the mini market in a big way and we saw that this year. So Eric, what do you expect then? I mean, we're talking about a higher terminal rate every week? Um, I think right now the markets pricing in like five and a quarter. What what are you looking at? Well? I mean I think our rate strategist is around five percent, um, you know, as far as terminal rate projection. But I think the bigger issue is if we keep seeing these strong economic prints come out, it's just going to prolong the pain for rates going into next year. So, Chris, for you and your team at the Valley National Bank, what are some of the opportunities for for you guys? Where do you think you might have some places to put some money to work? You know, I think one of the things that we've started to look at lately is kind of coming down the curve a little bit. Honestly, it's not it's not super exciting. It's not the most biggest way to get bang for the buck. But these short call bonds to two to five year type of call structure for a ten year UH final maturity, you can get a lot of added value over where you can get for a tern bond with two to three years to maturity. So you really can kind of beat it up and get a lot of performance out of it that way without risk. And it's like, again, people don't look immunities because they want a safe product. It's like, here's the way to get added benefit, added exposure, added participation, and added yield without a ton of extra risk. It's a it's kind of an easy way to do it, all right, good stuff of Spagotti. He's managing director, Senior vice president Municipal investments with Valley National Bank in Lovely Wayne, New Jersey. Eric Kazaski, senior US municipal strategist with Bloomberg Intelligence, in like equally lovely Princeton, New Jersey. So these guys are got New Jersey. Uh covered right at home here? Yeah, absolutely New Jersey boys kind of bringing it together. Thanks for listening to the Bloomberg Markets podcast. You can subscribe and listen to interviews with Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller, three pt on Fall Sweeney. I'm on Twitter at pt Sweeney before the podcast. You can always catch us worldwide at Bloomberg Radio