By Gayl Mileszko
The Wall Street Haboob
Every so often, the down drafts of thunderstorms can generate some colossal dust storms. A very specific type occurs in dry land area regions such as the Sahara, the Arabian Peninsula, central Australia, and the southwestern U.S. It is known as a haboob and often strikes with little warning. It can come from any direction, usually arriving in the form of an advancing, violent wall of sand that can reach speeds of up to 62 miles an hour, run for miles and extend more than three thousand feet above the ground. The blinding, choking dust dramatically reduces visibility for a period that might last for a few minutes or a few hours. On roadways, this can be disastrous, creating massive pileups and chain collisions. Drivers are advised to find a safe place to pull over, set the emergency brake, and wait inside until the storm passes.
Fast and Furious
The word haboob comes from the Arabic word for “blowing furiously.” It well describes financial market volatility this month. White House policy pronouncements as clarified, refined, and reversed, on trade, the independence of the central bank, federal agency cuts, and countless numbers of other issues, have come fast and furious, sometimes blindsiding issuers, creating pileups in the trading pits, and driving investors to the sidelines until the dust cleared. There is still a lot of coughing and choking, squinting and colliding going on. But, at this writing, there is a temporary pause and a bit of a relief rally underway. The President’s verbal assault on the Fed Chair is over for now, the Congress is out for another week, Elon Musk is about to step back from DOGE to refocus on his businesses, the Treasury Secretary hints of a big US-China trade deal, futures traders foresee three quarter-point rate cuts by the end of the year, and markets are counting on tax cuts, the downsizing of federal government, and an economy that is not headed into recession but a Fed braced to serve as a backstop just in case.
Municipal Markets Seeing Record High Issuance
The municipal market has not been immune to the volatility in the equity and Treasury markets that have captured most of the media attention. In April, the 2-year AAA general obligation benchmark yield at 2.96% is up 28 basis point on the month. The 10-year yield at 3.41% is 15 basis points higher, as is the 30-year at 4.39%. Contrast this with the 2-year Treasury yield at 3.81%, down 7 basis points; the 10-year at 4.40%, up 19 basis points; and the 30-year at 4.87%, up 30 basis points so far this month. But the tax-exempt market remains on track for a record high year of issuance, in part spurred by a backlog of need, in part by the threats to tax-exemption and tax-exempt issuance. We are working with a good number of clients seeking the right channels and time for market access. And, we are also working closely with investors to find rare bargains and municipal bonds, both tax-exempt and taxable, to bolster portfolio yields and diversify holdings in line with investment strategies. Please contact your HJ Sims representative for more information on how to make market rates work for you and how you might boost your stream of income.
HJ Sims in the Market with Non-Rated and Triple-A Rated Bond Offerings
HJ Sims took advantage of a brief but favorable break in conditions last week ahead of the holiday to bring two deals to market. We were pleased to underwrite a $134.2 million limited offering through the Florida Capital Projects Finance Authority for Millenia Orlando, a new 261-unit rental senior living community being developed by Trinity Asset Investments, a subsidiary of Trinity Broadcasting Network, the world’s largest Christian broadcasting network. We structured the non-rated transaction with 5 term bonds; the 40-year maturity was priced with a 7.125% coupon to yield 7.40%. We also sold $21.2 million of Newark Higher Educational Finance Corporation bonds for The Hughen Center’s Pre3K-12 Bob Hope School campuses in Port Arthur, Beaumont and Baytown, Texas. These bonds were rated triple-A with the state’s Permanent School Fund guarantee, and we priced the 2060 term bonds with a coupon of 5.25% to yield 5.10%. There was one other senior living deal in the market: a $134.8 million A-minus rated Massachusetts Development Finance Agency financing for Lasell Village which came with a 30-year final maturity priced at 5.25% to yield 5.38%.
This Week
The 30-day visible supply of municipal bond issuance now exceeds $23 billion, an all-time high. We are seeing institutions of higher education come to market with both tax-exempt and taxable corporate deals, fearful not of loss of market access but the higher rates that may one day accompany any potential loss of federal grant revenue and/or other new policy-related penalties. Some risk levels are elevated. Municipal bond mutual funds have suffered six weeks of outflows but exchange traded muni funds are still positive on the year. Paper losses in portfolios alarm many investors but we remind bondholders that the vast majority of interest and principal payments are being made on time regardless of how day-to-day evaluations fluctuate. Municipal bids-wanted and offerings are elevated, providing investors sitting on extra cash with some rare opportunities that our analysts and traders identify. We note that taxable municipal bonds are currently outperforming their tax-exempt counterparts, so please contact your HJ Sims representative to discuss all your investing as well as structuring options, rates and terms as they evolve in this shifting fiscal, regulatory and monetary policy environment.
Market Backdrop
Billion-dollar general obligation municipal bond deals are attracting hundreds of tax-exempt buyers, but many are also checking out the high yield muni sector as well as the U.S. corporate sector. The IMF World Bank meets and global leaders convene for private talks as they pay tribute to Pope Francis and await the white smoke signal from those who will announce his successor. There are two weeks to go until the next Fed monetary policy meeting and there are lots of economic data and Treasury auction results to digest beforehand. These information points (and others) on manufacturing, services, new and existing home sales, durable goods, sentiment, and inventories are often market-moving.
The Next Haboobs
We invite your contact, as always, and an exchange of views, to help inform your trading and better your investments as we head into the heart of the second quarter and all that lies ahead. We see strong fundamental justifications for investments in our essential purpose senior housing and charter school sectors. But we know there will be more day-to-day volatility as tariff, fiscal, regulatory and other policies unfold and new legislation affecting the muni market takes shape. So please continue to reach out for guidance as the dust swirls and settles and swirls once again.