by Gayl Mileszko
Some of our favorite local coffee shops, lunch spots, and five-star dining rooms where we have celebrated life’s most momentous occasions, have scaled down, converted to take-out or shuttered in the past year. There is no doubt that restaurants have been among the businesses hit hardest during the pandemic. More than 110,000 eating and drinking establishments closed last year, temporarily or permanently. On average, these eateries had been in business for 16 years; 16% had been open for at least 30 years. The restaurant and food service industry which represents about 10 percent of all payroll jobs in the economy has suffered massive damage even with Paycheck Protection Program assistance. The National Restaurant Association estimates that nearly 2.5 million jobs have been erased. Many of those who have struggled to survive have downsized, pivoted to outdoor venues or artisanal grocery stores. They have innovated by creating meal kits, adding alcohol-to-go, or dramatically altering their menus to offer more of the comfort foods in greatest demand from those of us who have been in great need of comfort.
There are approximately 216 Philadelphia area eateries that have closed in the past year but Vetri Cucina is not among them. This highly acclaimed restaurant also features private dining, sponsors classes, and has run an innovative community partnership for the past 12 years along with having a second location in Las Vegas at The Palms. We are pleased to have Chef Marc Vetri, a past James Beard award winner, with us for our Sims Late Winter Conference next week. He will be offering a virtual pasta-making class as one of the four special networking opportunities to conclude our day-long series of keynote speakers, breakout sessions, panels and roundtables on financing methods, operating strategies and technological advancements in senior living. We invite you to join us for the conference. The full agenda and registration process can be accessed via this link.
Philadelphia is just one of more than 19,500 cities, towns, and villages in America significantly impacted by the pandemic. The hits to business and labor have dented state and local revenue while costs related to COVID-19 have soared in many places, producing budget holes that have forced service reductions and layoffs from within a workforce of 18.6 million. State revenues fell 1.6% in FY20 and are expected to decline another 4.4% in FY21, but the variance is significant. Eighteen states are in fact seeing revenue come in ahead of forecasts. Revenue losses may total as much as $300 billion through 2022 while the need for higher spending on health care, jobless aid and food assistance has grown. Federal assistance has totaled $300 billion so far and the debate rages on over the amount and terms to be included in the stimulus bill still making its way through Congress. State and local borrowing has been understandably reduced in the interim. This, in turn, has led to lack of supply in the municipal bond market just as demand for paper, yield, and tax-exempt income has surged.
Municipals are outperforming taxable counterparts for four consecutive weeks and net inflows into municipal bond mutual funds and ETFs exceed $20 billion so far this year. The ICE BoAML Treasury Index is down 0.71%, and the Corporate Index return is down 0.39% but the Muni Index is up 0.34% and the High Yield Muni Index has gained 0.74% as prices reach nosebleed levels. Examples of high priced fixin’s include University of Texas bonds with a 5% coupon due in 2049 which traded last week at $163.429 and New York Dorm Authority bonds for Columbia University due in 30 years at $166.494. The ratio of municipal bond yields to Treasury yields has hit all-time lows, reflecting how rich tax-exempt valuations are relative to governments; the 10-year ratio is 58% and the 30-year is 67%. AAA municipal general obligation bond benchmarks have dropped 3 basis points since the start of the month. The 2-year stands at 0.08%, the 10-year at 0.69% and the 30-year at 1.34%. The 2-year Treasury is flat at 0.10% but the 10-year has gained 14 basis points and stands at 1.20%. The 30-year at 2.00% is up 18 basis points. Over $14 billion of U.S. high yield corporate bonds priced last week and yields fell below 4% for the first time in the market’s history. Party City received orders in excess of $3.5 billion for a $750 million five-year corporate bond offering rated Caa1/CCC+ which was increased in size and priced two days earlier than expected at a price of 8.75%. On the equity side, volatility has dropped by 40% on positive vaccine and stimulus news; the VIX Index at 19.97 is down from the year’s high at 33.09. The rally in stocks continues. The Dow is up over 5%, the S&P 500 up 6%, and the Russell 2000 up 10%. The Nasdaq, which just marked its 50th birthday, has gained 7.8%. Oil prices have increased more than $7 a barrel to exceed $60, silver prices are up 1.4% and Bitcoin has skyrocketed more than 37%.
The best news is that COVID case counts have dramatically declined since the peak on January 8. The daily trend in the number of reported COVID-19 deaths has significantly fallen since the worst days on April 15 and February 12. More than 52 million doses have been administered since December 14, reaching 11.5% of our population. There is nevertheless still talk of possible travel bans and /or negative testing mandates for interstate air travel. Such trends and chatter are of course very closely monitored by global financial markets. There are of course many other major market moving events, including disruptive ones such as the deep freeze in Texas, unexpected tweets on cryptocurrency buys, fast-moving IPO’s like Bumble, and Gamestop-like gambits. Traders continue to linger over every word uttered by Federal Reserve Bank officials. Every step in the process of producing a multi-course stimulus package is being noted even though no final menu is expected until next month at the earliest. There are also fourth quarter corporate earnings, Treasury auctions and daily economic reports to feast upon. Fears of new strains, inflation, and negative rates are often peppered in.
In this holiday-shortened week, about $6 billion of municipal bonds are expected to come to market, including $1.8 billion of taxable munis. Last week’s calendar totaled $7.5 billion. In the high yield sector, the Oklahoma Development Finance Authority issued $72.1 million of non-rated revenue bonds for the Oklahoma Proton Center including 2051 term bonds priced at par to yield 7.25% and taxable 2041 term bonds priced at par to yield 11%. The Suffolk County Economic Development Authority in New York sold $35.6 million of non-rated revenue bonds for St. Johnland Assisted Living structured with 2054 term bonds priced at 5.375% to yield 5.325%. Gallatin County, Montana came to market with $7.3 million of non-rated taxable industrial development bonds for Bridger Aerospace Group that had a sole maturity in 2040 priced with a coupon of 6.50% to yield 6.75%. For today’s high yield taxable and tax-exempt offerings, we encourage you to contact your HJ Sims representative.