Reinhart Week in Review by Madison Investments 12.06.2024

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EMPLOYMENT

The economy added 227,000 jobs in November. The unemployment rate rose from 4.1% to 4.2%. Average hourly earnings rose 0.4% for the month and are up 4.0% year-over-year. The labor force participation rate fell one-tenth to 62.5%.

Our Take: Employment markets remain in decent shape but appear to be softening somewhat. Earlier fears of a tight labor market propping up inflation are diminishing. Nothing in today’s report reduces the probability of a December Fed rate cut.

 

FRANCE

The French government led by Michel Barnier collapsed following a no-confidence vote led by far left and far right coalitions in the Assembly over disagreements about deficit reductions in the proposed budget. French President Emmanuel Macron is not stepping down and will name a new prime minister to try to form a new government and pass a budget before year end. Spreads on OATS (French government bonds) relative to Bunds (German government bonds) widened sharply to a level on par with some of the most indebted peripheral EU nations.

Our Take: The consequences of Macron's failed gamble on snap elections this past summer are happening right now. The current makeup of the legislature will make it impossible for any government to enact changes to move France towards compliance with EU fiscal rules, and there cannot be new legislative elections until next summer. The widening of the OATS to Bunds spread reflects short-term concerns around the impact of having no budget to start 2025 as well as longer-term concerns about France's ability to adhere to EU fiscal rules that keep Germany committed to the euro.
 
 

SOUTH KOREA

South Korean President Yoon Suk Yeol declared martial law, which suspended many key rights. Lawmakers quickly convened and voted unanimously to request that the order be lifted, which Yoon did. Yoon now faces impeachment, which members of his party in the legislature support. The won fell in response to Yoon's order.

Our Take: This was a bizarre incident in which Yoon seems to have severely miscalculated the reaction of the legislature, the military, and South Korean society to the martial law declaration. The bright side of this incident is that it demonstrates that South Korea has become a rule of law democracy where society and government institutions will not allow the seizure of power by the executive.

 

MUNICIPALS

Municipal bond issuance may top $500 billion in 2025 according to estimates. Bloomberg collected data from ten dealers, who mostly projected issuance in the neighborhood of $500 billion. Issuance for 2024 through November stands at $475.2 billion according to SIFMA Research.

Our Take: Issuance projections for next year are expected to be slightly higher than 2024 estimates and much higher than the $380 billion of issuance in 2023. As pandemic funds disappear, issuers are expected to tap the municipal bond market for financing needs. In addition, issuers may continue to refinance existing debt and tackle infrastructure projects. 2025 could turn out to be a record year for municipal issuance.
 

About Reinhart Fixed Income
“Madison” and/or “Madison Investments” is the unifying tradename of Madison Investment Holdings, Inc., Madison Asset Management, LLC (“MAM”), and Madison Investment Advisors, LLC (“MIA”). MAM and MIA are registered as investment advisers with the U.S. Securities and Exchange Commission. Madison Funds are distributed by MFD Distributor, LLC. MFD Distributor, LLC is registered with the U.S. Securities and Exchange Commission as a broker-dealer and is a member firm of the Financial Industry Regulatory Authority. The home office for each firm listed above is 550 Science Drive, Madison, WI 53711. Madison’s toll-free number is 800-767-0300.

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Madison Investment Holdings, Inc. acquired the fixed income management assets of Reinhart Partners, Inc. on June 11, 2021 and now employs the Investment Team that previously managed the assets at Reinhart. The Investment Team manages the assets using substantially the same strategies and objectives as at Reinhart. Performance information dated prior to the purchase reflects that of Reinhart Partners, Inc.

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