Market Commentary: Neither Snow Nor Rain Nor Low Yields

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The first American post office was located in a bar in Boston, and no one who studies American history would be surprised to learn this. The historic 1639 site has since been replaced many times over and is now home to a 42-floor skyscraper of mixed office and residential use in the downtown area. So, Hinsdale, New Hampshire now holds the record for the country’s oldest continuously operating post office, a clapboard structure on Main Street that still boasts the original brass postal boxes. That location is one of 31,322 currently managed by the United States Postal Service, an independent agency of the Executive Branch, with roots dated back to 1792 when first authorized by the U.S. Constitution. Its 630,000 employees handle 48% of the world’s mail volume, operate one of the largest civilian fleets on the planet with nearly 228,000 vehicles, and place itself at the core of a $1.6 trillion mail industry with more than 7.3 million workers.

There has been a lot of attention focused of late on this agency and its prominent, perhaps integral, role in the coming elections. If many of us decide not to vote in-person at polling sites, as expected, will it be able to process millions of mail-in ballots securely and on time? Under the post 9/11 Mail Cover Program, they already photograph the front and back of every piece of U.S. mail as part of the sorting process, and we currently entrust them to handle 471 million pieces of mail every day, 36 million of our annual address changes, and 80 million of our money orders. Many of our local postal workers are highly trusted as neighbors and friends, better known to us than are any other government representatives, relied upon for critically needed deliveries. In the early days of parcel post, even children were “mailed” back and forth between parents and grandparents on rural routes. But, over the years, the postal mission of serving the public good was in large part intertwined with a business model that has become outdated by technology. It is seen by some as a poster child for mismanagement, a target for privatization, or a black hole unworthy of further taxpayer subsidies.

Ben Franklin was the first U.S. Postmaster General and Louis DeJoy is the 75th to hold that role. DeJoy is the second highest paid government official after the President and, since June, has presided over the nation’s largest retail network — bigger than McDonald’s, Starbucks and Walmart combined – paying $2 billion in salaries and benefits every two weeks, overseeing one of the nation’s oldest law enforcement agencies, straining under losses of $2.2 billion between April and June, $11 billion of debt, and Congressionally imposed limits on rate increases as well as requirements for pre-funding retiree health benefits. DeJoy, a CPA and former logistics executive, was just hauled before several Congressional committees in urgent virtual hearings, peppered with questions on his recent policy changes, and led on record to commit to delivering ballots within one to three days of being mailed. He was unable to cite the cost of mailing a postcard (35 cents) but was thankfully not asked to try and recite the famous words engraved on the front of New York City’s Farley Post Office: “Neither snow nor rain nor heat nor gloom of night stays these couriers from the swift completion of their appointed rounds”, written by the ancient Greek historian Herodotus in the 5th century B.C. in reference to messengers in the Persian Empire.

The House of Representatives came back from recess for a rare Saturday session to pass a bill providing $25 billion in emergency funds for the USPS and halt any changes to its operations until after the November election. The funds would be in addition to the $10 billion loan made by the Treasury in July under a provision of the CARES Act. If additional funds are approved by the Senate and White House, they would likely come in the context of a larger stimulus package on which no consensus has been reached since May. Main Street Americans, many struggling with budgets in the hundreds and thousands of dollars find it hard to process discussions involving billions and trillions. And yet these numbers pepper the daily headlines. One trillion is a thousand billion. One billion seconds ago, it was 1988. One trillion seconds ago it was roughly 30,000 B.C. A trillion dollars in $100 bills stacked on top of each other would be 789 miles high. A United Nations policy brief projects that the pandemic will cause $1 trillion in losses to the tourism industry. More than $1.4 trillion if investment grade corporate debt has been issued so far this year. Apple’s market capitalization hit $1 trillion in August of 2018 and it topped $2 trillion last week. The U.S. budget deficit has climbed to a record $2.81 trillion. The total size of the municipal market is $3.9 trillion. The stock market has surged by $13 trillion since its March 23 low; at this writing, the S&P 500 at 3,456 and Nasdaq at 11,589 have risen to record highs. The Chinese economy totals $14 trillion and the U.S. economy totals $21 trillion. Governments and central banks have already committed $20 trillion to pandemic relief efforts The U.S. debt exceeds $26.5 trillion. Assets in U.S. funded and private pension plans exceeded $32 trillion in 2019. The largest banknote on record, 100 Trillion, was issued in Zimbabwe in 2008 at the peak of a hyperinflationary period; it was worth $33 on the black market.

The International Capital Markets Association estimates the size of the global bond market at $128.3 trillion. Bond traders, however, are working with yields that are microscopic. At this writing, the 10-year Treasury yields 0.71%. The comparable sovereign yield in Japan is 0.03%, in the United Kingdom, Spain, and Portugal it is about 0.30%, in Canada it is 0.62%, in France -0.12%, in Germany -0.41%, and in Switzerland -0.47%. The 10-year top-rated tax-exempt municipal general obligation bond yields 0.75%. The U.S. can-maker Ball Corporation recently made history by selling 10-year BB+ rated bonds at 2.875%, the lowest coupon ever in the high yield market for a bond with a tenor of 5 years or longer, according to Bloomberg. There is some nice yield, however, to be found in the U.S. corporate and municipal markets for those able to tolerate some credit and duration risk.

At HJ Sims, neither price trends nor fund flow levels nor light dealer inventories nor lack of primary supply stays our traders from the hunt for and swift execution of purchases and sales for our income-seeking clients. We scour the high yield muni and corporate markets for our clients and offer opportunities to those who contact us with their interests and risk guidelines. Last week, the Tarrant County Cultural Education Facilities Finance Corporation brought a $131.4 million non-rated deal for MRC Stevenson Oaks in Fort Worth that featured 2055 term bonds priced at par to yield 6.875%. The Massachusetts Development Finance Agency had a $56.6 million BB+ rated financing for Milford Regional Medical Center that had a final maturity in 2046 priced with a coupon of 5.00% to yield 3.27%. The Florida Development Finance Corporation issued $14.4 million of non-rated bonds for UCP Charter Schools structured with 2050 term bonds priced at 5.00% to yield 4.70%. The City of Topeka had a $12.4 million non-rated financing for senior service provider Midland Care that included 20-year tax-exempt bonds priced at par to yield 4.00%.

This week, more schools re-open with hybrid learning plans, the world’s foremost economists gather for the first virtual Jackson Hole symposium, and the first virtual Republican National Convention convenes a week after the first virtual Democratic National Convention. U.S. and Chinese trade officials meet, riots continue to upend cities from Portland to Kenosha to New York, and Hurricane Laura threatens our citizens in Texas and Louisiana. There are now more than 179,023 deaths associated with CV-19 in the US. As this summer comes to an end, our thoughts, prayers, and good wishes are with all of the students, families, caretakers, healthcare providers, government officials, party leaders, legislators, thinkers, negotiators, public safety officials, businesses, associations, and market-makers working so hard to help us endure and transcend this pandemic.

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