By Gayl Mileszko
Press Stress
Exploding pagers. Two back-to-back presidential assassination attempts. Russian submarines off Alaska. Ukrainian drone attacks. One billion dollars’ worth of political ad blitzes. Vastly underreported inflation data. Soaring credit card charges and delinquencies. It is no wonder that 41% of Americans recently surveyed say that they are at “peak stress” right now, feeling their heads spin and their brains fog. It is so easy to feel irritable and have trouble sleeping with all that is going on. It is almost impossible to escape the assault of information, the inflammatory blogs, the relentless series off head-shaking events. Rapper racketeering. Pro-Hamas protests on college campuses. Cyberattacks on charter schools. Home invasions. Housing bubbles. Random sidewalk attacks on elderly women. Monkey pox. Familiar brand bankruptcies: Red Lobster, Big Lots, BurgerFi, Philadelphia’s University of the Arts, Steward Health hospitals, Midwest Christian Villages, and even Tupperware.
Fed Frenzy
On top of all this news, investors have been whipped into a frenzy over the size of the Federal Reserve’s rate move on Wednesday. Given that this reduction, relatively small as it is, will take some time to work through the economy, and that it will have no impact on our wallets or the price of milk and eggs tomorrow, the overhype has been staggering. Maybe we are just glad to focus on something other than politics, stressed as we are by the November election prospects only 47 days away. But even the Fed funds rate is being viewed as political by some, a boost to the economy favoring the Vice President. The only way the Fed could escape maximum blame for error or bias was by publishing a somewhat rosy dot plot showing that we are moving in a direction that is better for borrowers, including small businesses, homebuyers, car buyers and even our own government with a $35.3 trillion debt and interest payments that have now exceeded defense spending.
Bond Market vs Stock Market
The bond markets, as reflected in the 2-year Treasury yield at 3.64% at this writing, are telling the Fed that they are nearly 200 basis points too high right now. Since the start of this month, the Treasury yield curve has begun to return to more normal conditions. The 10-year stands at 3.68% and the 30-year at 3.99%. The muni yield curve is also changing. The 2-year AAA benchmark at 2.30% is down 15 basis points so far this month. The 10-year tax-exempt at 2.63% has fallen 8 basis points. The 30-year a 3.50% is 10 basis points lower. Stock market index returns are fairly flat on the month awaiting the Fed announcement but are reporting double digit returns ranging from 10% on the Dow to 18% for the S&P and Nasdaq year to date.
No Fears for Municipal Borrowers: Hunger for High Yield
Although high yield muni investors have been disappointed with this year’s lack of supply, many municipal borrowers across the rest of credit spectrum have been taking advantage of rates that remain historically low. Looking back over the past 20 years, the 30-year AAA municipal general obligation benchmark at 3.50% is below where it stood at year-end in 2022, 2013, 2011, 2010, 2009, 2008, 2007, 2006, 2005, and 2004. Last week, the Louisiana Public Facilities Authority issued $28.4 million of BB+ rated refunding bonds for Lake Charles Charter Academy Foundation structured with 2043 term bonds priced at 5.00% to yield 4.79%. The Community First Solutions Obligated Group came to market through Green County Port Authority in Ohio with $24.2 million of BBB+ rated refunding and improvement bonds that included a 2059 maturity priced at 5.00% to yield 4.53% and $21.9 million of Warren County, Ohio refunding bonds that featured a 2052 maturity priced at 5.00% to yield 4.45%.
Peak Issuance
Stress is, of course, a fact of life and every generation deals with its own version. There is no escaping the fact that economies move in cycles and the element of surprise is always present. Needless to say, we have important elections every two and four years here. Markets always get most anxious in presidential election years and this one may set a new record. Much is being made of the crush of issuance – both corporate and municipal – so far this year to get ahead of the November voting deadline, maybe even ahead of Columbus Day. High yield corporate bond sales so far this year total $218.5 billion, more than what we saw in all of 2023 and all of 2022. Investment grade corporate bond issuance exceeds $1.22 trillion. The municipal bond market has seen nearly $350 billion this year, up 38% year over year; we may finish 2024 with the highest volume in at least 10 years. It is likely that issuance will tail off the closer we get to November 5 in order to avoid perceived volatility. It may even drop off for the weeks that follow as we digest the results of presidential and legislative races, the impacts on policy, tax rates, regulation, and so much more. But the borrowing needs of businesses, municipalities and nonprofits will not disappear. In fact, the needs will likely increase given that pandemic era stimulus is over and future federal funding reductions are inevitable given our fiscal situation.
HJ Sims Active in the Market
This week, HJ Sims is bringing a $24.9 million financing for Leadership Prep School, a K-12 public charter school with 1,400 students in Frisco, Texas. The bonds are being issued through the Arlington Higher Education Finance Corporation to finance a new elementary school, and have the guarantee of the Texas Permanent School Fund which carries the triple-A rating from Moody’s. We have a great pipeline of transactions planned for the next 3 months and well into the next year. Our banking, trading, sales and analytic teams closely monitor market conditions impacting our individual investors as well as our institutional accounts, and we remain bullish on our tax-exempt market. We have seen 11 straight months of net inflows into municipal bond funds, and a trend of increased holdings by households, money market funds, exchange traded funds and conventional mutual funds.
De-Stressing
When it comes to our mindsets heading into the final quarter of the year, we encourage all to focus on the positives. After nearly 90 years in the business, we have seen so much unnecessary panic and volatility, and know of many ways to help you, your family, your employees, friends, colleagues, and neighbors unwind, reduce the noise and panic, and try to reach your goals. We also remind all our readers to take advantage of so much — away from the markets — that we can all enjoy only at this time of year. The Feast of San Gennaro in New York’s Little Italy. All the harvest festivals and great band reunion concerts taking place across the country. The fantastic state fairs underway this month and next in Alabama, Arkansas, Arizona, Georgia, Louisiana, Massachusetts, Mississippi, North Carolina, Oklahoma, South Carolina, and Texas. We have the World Series, America’s Cup, Thanksgiving, and so many other exciting days ahead for you, for us, for our markets and for our country. Please reach out and contact us through your HJ Sims representative to share your views and plans, and let us know how we can help you navigate your way through the daily press stress.