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Smith's Research & Gradings
November 23, 2020

Smith's Research & Gradings

Treasury Secretary to Close COVID-19 Lending Facilities

Treasury Secretary to Close COVID-19 Lending Facilities

On Thursday, November 19, Treasury Secretary Mnuchin sent a letter to Fed Chair Powell indicating that he would be allowing most of the Fed's 13(3) emergency lending facilities to expire at year-end, and requesting that the Fed "return unused funds to the Treasury" in order for Congress to "re-appropriate $455 billion, consisting of $429 billion in excess Treasury funds for the Federal Reserve facilities and $26 billion in unused Treasury direct loan funds."

Morgan Stanley & Co.'s top team of strategists noted the announcement was immediately met with a rare statement from the Fed, and was followed on Friday by a letter from Chair Powell responding to Secretary Mnuchin and indicating that the Fed would "work out arrangements...for returning the unused portions of the funds allocated to the CARES Act facilities in connection with their year end termination."

Christopher White, municipal strategist at Jefferies, observed the technical strength in the municipal market persists, characterized by very strong demand driven by coupon reinvestment proceeds and healthy fund inflows, a dearth of supply and general optimism on recent vaccine headlines from Pfizer and Moderna.  
Mr. White added, "Municipal market sentiment appeared undeterred following Thursday's news from Treasury Secretary Mnuchin that the Fed's emergency lending facilities, including the Municipal Liquidity Facility, will not be extended beyond the 12/31/20 expiration or by the recent COVID-19 resurgence and lockdown headlines.

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KBRA: State Revenues Beating Predictions

Kroll Bond Rating Agency's (KBRA)review of state revenue was lead by Paul Kwiatkoski, Managing Director. The State revenue losses show the results may be much less severe than originally estimated.

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