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By Tom Kozlik
Head of Public Policy and Municipal Strategy
Hilltop Securities Inc.
Today’s May Consumer Price Index (CPI) report did not reduce the appeal for municipal bonds, but it does strengthen the argument for investors to raise standards when approaching them. CPI rose 0.5% in May and 4.2% over the last 12 months, up from 3.8% in April. Energy accounted for a significant portion of the monthly increase, while core CPI rose 0.2% in May and 2.9% year-over-year. This data likely keeps the Federal Reserve under pressure to stay patient even if the inflation shock is not broad based in the same way as 2022.
Municipal investors do not need a Fed rate cut to justify owning high quality tax-exempt bonds in this environment. As we indicated yesterday, the Fed is not the story. The Fed is looking for the story. Tax-exempt income, attractive yields and maturity selection, and credit quality are. Markets largely expect the Federal Open Market Committee to remain on hold when its decision is released on June 17, but investors will be looking for signs of how concerned Fed officials are about inflation going forward and whether that concern could shift the conversation toward a rate increase at some point.
Readers may view all of the HilltopSecurities Municipal Commentary here.
As Head of Public Policy and Municipal Strategy, Tom Kozlik advises HilltopSecurities’ businesses and clients on strategies related to U.S. public policy, public finance, and infrastructure. He publishes regular commentary that provides insight into current trends affecting these themes across a variety of sectors and geographic regions. Kozlik is frequently featured in print, digital, and broadcast news segments and regularly offers his expertise as a keynote speaker and panelist at industry conferences and events across the country. He can be reached at 214.859.9439 or tom.kozlik@hilltopsecurities.com.
The paper/commentary was prepared by HilltopSecurities (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 Public Finance as of the date of the document and may differ from the views of other divisions/departments of 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 is a wholly owned subsidiary of Hilltop Holdings, Inc. (NYSE: HTH) located at 717 N. Harwood St., Suite 3400, Dallas, Texas 75201, (214) 859-1800, 833-4HILLTOP.