HJ Sims Market Commentary: Going Gray

by Gayl Mileszko

A survey conducted in March for the genealogy company Ancestry.com found that there is a shockingly wide knowledge gap when it comes to our family history. More than half of us — 53 percent — are unable to name all four of our grandparents.  Familiarity with past generations reportedly varies widely by location. In Boston, 66 percent of those polled could name all of their grandparents, while the percentage dropped to 36 in Chicago and Dallas, 34 in San Francisco, and 26 in Philadelphia. The explanations are as varied as our relationships. There are divorces, remarriages, no marriages, grudges, deaths, relocations. Some of us know and cherish our forebears and make efforts to become unforgettable to the generations that follow. But, for others, perhaps over time, we drift apart, memories fade, we lack curiosity or we come to hold others more dear.

Grandparents Are Out Numbering Grandchildren

The world is aging. For the first time in history, there are more grandparents and elders in the world than young children, according to the United Nations. Their figures show that the number of over-65s surpassed that of under-5s at the end of 2018. In the U.S., those over 65 will outnumber those under 15 in 2024, less than two years from now. The number of persons in working ages 15 to 64 for each person aged 65 years and older has declined from nearly eight in 1950 to about four today. By 2030, all baby boomers will be older than age 65; one in 5 of us will be of retirement age. Families, communities and society as a whole are already facing a variety of new challenges in terms of the services and care needed as the country grays. Going forward, there are significant implications for the U.S. budget and economy, employment, taxation, investment and retirement. Our country’s sociopolitical mood may become more risk-averse, our time horizons shorter. And America is not alone.  Russia will experience this historic reversal in 2027, Australia in 2028 and China in 2029. 

Senior Living Community Financing

Non-profit retirement communities are being developed and expanded across the country to meet the growing need for senior housing and elder demand for very specific services and amenities.  The bond markets provide critical support in these efforts. Last week, the Henrico County Economic Development Authority in Virginia sold $98.1 million of A-minus rated tax-exempt revenue bonds for expansion and improvement projects at Westminster Canterbury Richmond, one of the first continuing care retirement communities in Virginia and one of the largest single-site campuses in the country with 809 independent living, assisted living, and nursing units.  The deal has a final maturity in 2052, callable in 7 years at 103%, which priced at par to yield 4.25%. The Massachusetts Development Finance Agency also came to market and issued $38.5 million of non-rated tax-exempt bonds for the Briarwood life plan community with 310 units in Worcester and West Boylston. This transaction refunded all their outstanding 2004, 2010 and 2018 debt and was structured with a 2050 maturity priced with a coupon of 5.25% to yield 4.78%.

School Facility Financing 

At the other end of the demographic curve, the municipal bond market also provides essential means for the education of young students by financing the construction, renovation and equipping of elementary and high school facilities. Last week, 23 school districts in 12 states sold $922.1 million of tax-exempt and taxable general obligation bonds, some of which were state enhanced, on a fixed or variable rate basis.  In addition, six charter schools in six states came to market with $278.6 million of offerings: Camden Prep High School in New Jersey; Discovery Charter School in Philadelphia; Mater Academy schools in Cutler Bay, Hialeah, Hialeah Gardens, North Miami and Miami; Leman Academy of Excellence in Mesa, Arizona; Pinecrest Academy in Sparks, Nevada; and Eleanor Kolitz Hebrew Language Academy in San Antonio. The ratings on these charter school bonds ranged from non-rated to triple-A; maximum yields in thirty years were between 3.95% and 4.75%.

Rates Rising But Still Favorable for Borrowers

All borrowers are facing rates that now seem to jump higher every day in an attempt to meet expectations for Federal Reserve policy moves. These moves are being signaled in an attempt to quell inflation that has risen to levels never before seen by those under 40 years of age. The Consumer Price Index is up 1.2% since February and is 8.5% higher than it was one year ago. We have not seen such an escalation in the cost of living since the early days of Ronald Reagan’s presidency. It is unclear as to whether anything the Fed does will slow it enough to restore price stability for key needs like groceries, gasoline and rent, and keep mortgage and credit card rates from ratcheting up further into nosebleed levels. But the bond markets and buyers are nevertheless active, finding rates and yields still relatively attractive.  On Monday, Amazon came to market with a $12.75 billion debt offering in seven parts; its senior unsecured bonds, rated A1/AA, and due in 2062, bore a coupon of 4.10%. Many see this as a fantastic rate, even though the company was able to borrow at 3.25% just one year ago.  Dallas Fort Worth Airport, rated A1/A+/A+ had a $1.1 billion taxable municipal bond sale last week that sold with a 30-year maturity priced at par to yield 4.50%; that is significantly higher than the 2.91% yield on the 2050 bonds they sold in August of 2020. The higher level is good news for investment grade buyers, and the airport still gets a much better deal than they could in markets 10, 20, 30 or 40 years ago.

Markets So Far in April

We are almost halfway into the first month of the second quarter, heading into a short trading week. It has been another rough month for stocks and bonds on top of a difficult first quarter.  At this writing, the Nasdaq is down 5.7% during the first seven trading days of April. The Russell 2000 is down 4.3%, the S&P 500 has fallen 2.6% and the Dow is down 1.1%. Oil prices have fallen 6%, Bitcoin is down nearly 11%. Gold and silver prices have only suffered only slight losses unlike bonds. The 2-year Treasury yield at 2.49% is up 16 basis points, the 10-year at 2.78% is 45 basis points higher and the 30-year at 2.80% has increased by 36 basis points.  The 10-year corporate Baa rated bond yield at 4.80% is 38 basis points higher so far in April. Municipal bond yields are also up cross the board by an average of 26 basis points in only seven sessions this month: the 2-year AAA general obligation bond stands at 1.99%; the 10-year is at 2.42%, and the 30-year benchmark is yielding 2.77%.

Holidays to Celebrate

Trading will slow this week as we head into the Good Friday holiday. Markets close early on Thursday, although government offices remain open both Thursday and Friday.  We may see as much as $6 billion of municipal bond volume and $15 billion of corporate bond sales. Secondary trading volume is elevated as a result of continuing outflows from mutual bond funds.  CreditSights reports that the total par amount of municipal bonds out for the bid in the Bloomberg system last week hit a 2-year high, and that retail and institutional blocks offered are at the highest levels since 2009. Customer buys are nevertheless exceeding sales by an average of $1.7 billion per day. Muni and equity ETFs are still taking in new cash, as are tax-exempt money market funds, ahead of Tax Day. This week’s taxable sales will in part reflect the outcome of eight U.S Treasury auctions, eight Fed official speaking engagements, and the release of several key economic indicators, including the producer price index, retail sales, import prices, consumer sentiment and business inventories.

Contact Your HJ Sims Representative

We are approaching several major religious holidays where prayer, reflection and celebration are central. These special moments involve families and communities comprised of both young and old. We at HJ Sims wish you and yours safe travels, happy reunions and healthy conversations. Global events impact all our lives and no trends pass us by. We invite you to reach out to your HJ Sims representative to learn how we can help you plan well for all the days ahead.

For more information on our municipal offerings or questions about current market conditions, please contact your HJ Sims representative

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