By Gayl Mileszko
Great Shakes
One hundred years ago, Charles Scribner’s Sons published what some have come to call “The Great American Novel”. At the time, The Great Gatsby was a bust; it sold fewer than 23,000 copies in its first year. The 29-year-old author was named Francis Scott Fitzgerald and, despite some previous successes, he actually considered himself a failure when he died 15 years later at the age of 44. His classic novel, set in the Roaring Twenties on Long Island, is a fabulous tale of flamboyance and the many complexities involved in life: the struggles for love, wealth, social status, happiness, fulfillment, and success. His characters live on to this day and resonate with all too many who stare at a green light across the bay and wrestle with a wide range of moral and legal questions while pursuing their version of the American Dream.
Timetable to “Make America Great Again”
The mantra of the 45th and 47th U.S. President is one of success one hundred days into his second term. Most of his predecessors also came in promising a lot of quick action but this one has had one of the most disruptive rollouts in history, making major changes at the speed of light in how the federal government and our economy work. He has issued a record number (142+) of executive orders which have been met, of course, with the filing of more than 200 lawsuits. While his actions on border security generally meet with widespread support, his tariff pronouncements have raised major fears about inflation and recession. Various polls show that his policies are perceived as making them worse off than expected, that they are unsure of his plans and worried that he is moving too darned fast. His administration says that he is working to meet last November’s voter mandate, and that his policies will make America wealthy, healthy and safer again. Half the country doubts while the other half wants his timetable moved up.
Great Balls of Fire
April comes to an end and what a wild ride it has been. Aside from the March Madness finals and the NFL draft, we have had tariffs, pauses, elections, protests, attacks on the central bank and its chair, declining consumer confidence, higher expectations for inflation, deportations, Tax Day, university grant claw backs, a negative GDP reading. Financial markets went haywire and area all still askew. The VIX Index reflecting stock market volatility has jumped up and down between 21.51 and 52.33, a high not seen since March of 2020. The S&P 500 index has ranged between 4,982 and 5,670. The Nasdaq has bounced between 15,267 and 17,601. The 10-year and 30-year Treasury yields have moved up and down in a range of 50 basis points; the 10-year between 3.99% and 4.48%, and the 30-year between 4.40% and 4.90%. Few year-to-date returns outside of Treasuries, high grade corporate bonds, and precious metals are positive. The good news is that markets have worked as intended, with very few liquidity concerns and no central bank interventions.
Going to Great Lengths
In the municipal market, yields whipsawed even more than Treasuries this month as investors viewed tax-exempts in one of three ways: as havens along with gold and Treasuries, as risks along with all other asset classes under stress, or as forgettable in the midst of a surging stock market. The 2-year AAA general obligation benchmark moved 97 basis points in April, swinging between 2.45% and 3.42% within a matter of 4 days. The 10-year yield ranged 92 basis points between 2.97% and 3.89%. The 30-year yield swung 85 basis points between 3.99% and 4.84%. Bids-wanted par on several days hit record highs, exceeding $2 billion, double the daily average. Municipal Market Analytics reported that the number trades on April 9 was at an historic high: retail trades surpassed 100,000 and institutional trades at 4,000 hit a level that was only exceeded in March of 2020. Several times, volatility caused issuers to postpone market entry. In at least one case, a planned competitive sale was pulled and converted to a negotiated offering. During several market rallies, we saw transactions upsized and/or bumped in price. During sessions of peak policy uncertainty, nervous investors pulled money from mutual funds and rushed to liquidate exchange traded funds. Tax-exempt money market funds took in a net of $1.6 billion during the past four weeks but conventional mutual funds and ETFs suffered a combined $5.1 billion of outflows.
Going Great Guns
Year-to-date municipal issuance is running 15% ahead of last year and on track to set a new record for the second year in a row. Borrowers continue to come to market in spite of — or regardless of — the volatility, as they are finding sufficient demand at rates prevailing at or below historic norms. Last week, volume totaled $16 billion and we expect $14 billion this week. Fund outflows slowed during the period ended April 23 but we hope to see inflows return as soon as this week. Policy-related volatility aside, the Spring is typically a weak season for munis anyway. April saw the lowest monthly principal and interest payment periods of the year at $24.7 billion. But good news comes Thursday. On May 1, investors will receive $22 billion and we will see another $13.4 billion by the end of the month. In June, July and August, a combined $145 billion will hit accounts, the peak for the year, and provide strong technical support for the market. Some credit concerns have started to appear in specific sectors including higher education, ports, airports, and stadiums, for example, as a direct result of Trump Administration policies on the table or in the process of being implemented. These include rescissions, taxation of endowments, grant and other funding terminations, and reductions in agency staffing potentially impacting regulatory actions and the processing of pending applications. On top of that, threats to tax-exemption remain real as the Congress moves forward with one or more reconciliation bills providing for the extension of the 2017 tax cuts.
Our Great Big Beautiful Municipal Bond Market
The municipal market is an exciting and dynamic one. It is one in which President Trump himself invests: his latest government ethics filing reported that his portfolio includes 539 individual municipal bonds, including senior living and charter school credits, among others. This year, there has never been a dull moment for him or for those of us working in the tax-exempt space. Borrowers, buyers, issuers, advisors, lawyers, consultants, monitors, trustees, dealers and others, along with their associations, have been reaching out to their elected representatives in an unprecedented way on fiscal and regulatory matters. The latest hot issue for some involves religious charter schools. On Wednesday, the U.S. Supreme Court heard oral arguments on the constitutionality; its ruling, expected before July 4, could have a significant impact on the size and credit aspects of this sector. Reach out to your HJ Sims representative for more information.
Great Minds
Fans of The Great Gatsby will recall the pivotal character Daisy Buchanan the beautiful and charming, self-centered and materialistic embodiment of the privileged elite in the old Roaring ‘20s. We wonder which character will best symbolize the Americans in this century’s Roaring’20s? We are only halfway through the decade, still a work in progress, but we certainly strive to attain more robust forms of wealth, including an abundance of health, time, strong relationships, and skills. Reach out to your HJ Sims representative today to discuss how we can help to meet your goals. Great minds think alike.