By Gayl Mileszko
The Heat is On
Sum-sum-summertime has arrived. The lyrics in that 1958 hit song by the Jamies celebrate the glory of the season which officially begins today. The summer solstice marks the exact moment when the sun is at its highest point in the sky, the furthest north, directly above the Tropic of Cancer. The start of the astronomical summer in the Northern Hemisphere occurs at 4:51 p.m. EDT. We call it the longest day but it is actually the day with the most daylight. If you find yourself north of the Arctic Circle today, you will get to enjoy a full 24 hours of daylight. The meteorological summer actually began on June 1 and, because it has been unusually hot in many parts of the country, it feels like summer started much earlier than that. Due to some peculiarities in the Gregorian calendar that we use to mark time, it happens that this is the earliest solstice in 228 years.
Warnings from Washington
Back in 1796, George Washington was president, Tennessee was admitted as the 16th U.S. state, the U.S. took possession of Detroit from Great Britain, Napoleon Bonaparte seized the Papal States, and Catherine the Great ruled Russia. It was a presidential election year in America and Washington, 64, chose not to seek a third term. He faced accusations of monarchical desires and an increasingly hostile press, and yearned for the quieter life of a citizen farmer. So this was the first election in in which political parties competed for the new nation’s highest office and, as it turned out, John Adams, a member of the Federalist party, defeated Thomas Jefferson, a member of the Democratic-Republican Party. In his farewell address, Washington, the only president never to be affiliated with a political party, encouraged unity of North, South, East and West as integral to commerce and national security, labeling the Union as the main “prop” of our liberty. He worried that parties fighting for power would inspire a “spirit of revenge” as power swings from one party to another, and advised that we preserve our national credit by avoiding war and unnecessary borrowing.
In The Beginning
When George Washington was first elected president, he chose Alexander Hamilton to be the first Secretary of the Treasury, a position he held from 1789 to 1795. Will Rogers, a social commentator with the kind of good humor and political wit sorely lacking today, once remarked that “Hamilton started the U.S. Treasury with nothing, and that was the closest our country has ever been to being even.” Secretary Hamilton set up our banking system, federal budget process, a system for the collection of federal taxes, and federally issued bonds to pay for $79 million of the states’ Revolutionary War debt. During his time, there were five securities traded on Wall Street: the stock of the Bank of the United States, which he established; the stock of the Bank of New York, which he founded; and three U.S. government securities — a 6% bond, a 3% bond, and a 6% bond with interest deferred for ten years.
Treasury Signals
Today, the U.S. Treasury offers five types of marketable securities: bills, notes, bonds, inflation-protected TIPS, and floating rate notes, plus the non-marketable securities known as savings bonds. The Treasury offering the highest yield at present is the 3-month at 5.38%, above the 10-year at 4.22% and the 30-year at 4.35%. Yields have been upside down for two years now – a once reliable indicator of recession. So too is the wide spread of 103 basis points between the 10-year yield and the Fed Funds target rate of 5.25% to 5.50%. Some economists believe, and many Americans feel, that we are in a recession. We have certainly been talking about it for long enough since the last one, the shortest on record, was declared in 2020. The eurozone experienced a mild recession last year with two straight quarters of negative growth. But the Federal Reserve Chair does not see any sign of one on the horizon for us.
Price Tags
The U.S. was literally born in debt but we have gone wildly overboard. Hamilton believed that “A national debt, if it is not excessive, will be to us a national blessing.” Today, we are blessed with $34.8 trillion of debt and our budget deficit is expected to hit nearly $2 trillion this year. The latest version of the Congressional “Pig Book” was just released by Citizens Against Government Waste, exposing about $22.7 billion of earmarks, which now sounds like small potatoes in context. Some readers may recall that in 1986 it was a major scandal when taxpayers learned that the Department of Defense was paying $640 for standard plastic toilet seats. In 2018, the price tag rose to $10,000 for the lid only on some, and no one batted an eye.
Hot Markets
Some corporate and municipal bonds are pricey right now, and the last 10-year, 20-year and 30-year Treasury auctions met with strong demand. The CNN Fear and Greed Index is pointing to Fear as most reflective of current investor sentiment. Amid uncertainty about rates and politics, money has been moving into safer, less speculative sectors. Money market fund assets have risen to an all-time high of $6.2 trillion, and many new bond offerings are oversubscribed. On Monday, more than $21 billion of corporate bonds were sold in the primary market. This included a $10 billion sale of A2 rated Home Depot bonds in 9 parts that attracted $47 billion of orders. The $105.2 million Ba2 rated financing for Basis Texas Charter Schools also came to market and met with solid demand. Bonds sold through the Arlington Higher Education Finance Corporation were repriced; the final structure included a 40-year term maturity that had a coupon of 5.00% and yielded 5.15%.
HJ Sims in the Market
HJ Sims was in the market last week with a $20.9 million BAM-insured financing for the Greater Ouachita Water Company in Louisiana. We priced the 30-year term bonds at 4.50% to yield 4.65%. Among other deals on the $8.9 billion slate, Palm Beach County, Florida brought an $81.6 million non-rated transaction for student housing at Lynn University; bonds maturing in 2059 were priced at 6.25% to yield 6.45%. The Philadelphia Industrial Authority had a social bond issue for First Philadelphia Preparatory Charter School structured with a 2043 maturity that came with a coupon of 5.00% to yield 4.92%. And Turning Point School in Culver City, California, a private PreK-8 school with a 54 year history had a $13.1 million BB-rated issue featuring a 30-year maturity priced at 5.50% to yield 5.57%. High yield muni index returns so far this year total 4.63%, beating Treasuries, corporates, mortgage-backed, and convertible bonds as well as preferred stock and the Dow Jones Industrials. Investment grade muni returns in 2024 have just turned positive at 0.22%
Market Movers
Traders will be listening closely to the 10 Fed speakers on the circuit this week trying to pinpoint the timing of the next rate actions. The open market committee met last week and released the anonymous projections of its voting members, indicating the likelihood of one rate cut this year rather than none or two. September and December remain the current focus. In the meantime, the central banks of Norway, Australia and England are meeting to decide on their policies. The French bond market has been roiled by the call for a snap election. Ukraine is looking for its bondholders to take a haircut on more than $20 billion of outstanding debt. The Russian President is in North Korea signing a mutual defense pact. Back at home, the Treasury has 8 auctions scheduled, and economic data releases are expected on retail sales and industrial production. Several home builders are reporting quarterly earnings. The Supreme Court has several major rulings expected in the next two weeks and preparations are underway for the NATO summit in Washington next month.
Everything Under the Sun
Because our Earth is tilted on its axis by 23.5 degrees in its orbit around the sun, the other half of the world, the Southern Hemisphere, with about 12% of the population, welcomes the start of winter and the day with the least amount of daylight. Their summer will begin on December 21. Wherever you are this season, it is the midpoint of the year, a good time to review financing options, cash alternatives, higher yielding investments, and strategies for the next two quarters. Yes, it is an election year, we have foreign entanglements, excessive debt, a divided union, and rates and rents that are too darned high. All the more reason to discuss your concerns, and address your needs and goals, with your HJ Sims representative.