Market Technicals & Supply/Demand - The underperformance was largely driven by technical factors, including uncertainty around tax exemption and pulled-forward supply [1] - Supply wasn't met by enough buyers due to questions around tariffs and concerns around federal spending [2] - A recovery of the technical sell-off has been observed recently [3] - Supply tends to dampen a bit in the fourth quarter, which is constructive for yields [11] Federal Funding & State Budgets - Reduced federal funding is expected under the current administration, impacting state budgets [3] - Medicaid accounts for approximately 60% of state revenues from the federal government, making it a key area of impact [4] - States have limited options: cut coverage or make difficult budget decisions [5] California's Fiscal Situation - California's revenues are more than 50% higher than pre-COVID levels, indicating a spending problem rather than a revenue problem [7] - California is dipping into its reserves despite 20+% equity market gains, which is concerning [7] - A credit downgrade for California is possible as early as this summer [9] - A downgrade would be a notch downgrade from A to single-A, still very strong [8] Investment Strategy - Investments favor local geos and public schools financed by property taxes due to their reliability [9] - The industry expects to achieve the year of carry for 2025 [11]