By Gayl Mileszko
Market Commentary
Jackpot
In the 1942 movie Casablanca, Captain Louis Renault delivered a line that has since become the classic comic irony. When ordered to close down Rick’s Café American by the murderous Nazi Major Heinrich Strasser, Renault grasped for a pretext. Quickly feigning moral outrage over the open-secret casino operations in the back room, he declares to Rick, “I’m shocked, shocked to find that gambling is going on in here!” just before a croupier hands him his nightly cash winnings. Eighty-four years later, we are still gambling in back rooms and betting parlors — now mostly online — and we still use Renault’s line to express our fake surprise at finding something verboten yet widely practiced.
Betting on Liberty
The Founding Fathers and people in the colonies who supported rebellion against Great Britain in 1776 gambled their very lives on what historians later saw as a long shot bet against a powerful empire. They bet that a republic based on liberty, independence, elections, and representative government could survive, that the only legitimate government is one that rests on the consent of the governed, and that states with different interests, religions and economies could become a single nation. And their bet has been a winner for 250 years, one that we celebrated in spectacular style this past weekend.
Ante Up
Forty-eight states, all but Hawaii and Utah, have legalized and regulate at least one form of gambling. Most run lotteries and host commercial or tribal casinos; 39 allow sports betting, and 8 have legalized online gaming. But we are hardly content with the legal methods. New options have arisen over time as a result of the stock tickers, cable TV, scientific polling, and the internet. Eventually, the courts got involved in legitimizing event contracts offered on such platforms as Polymarket and Kalshi, contracts trading peer-to-peer as financial instruments similar to futures and derivatives. Users buy and sell contracts on the outcomes of real-world events – everything from presidential elections and college basketball to billboard music ranks and central bank rate actions. More than about $1.3 billion of notional trading volume is processed every day on these platforms, and the level appears to be peaking during the FIFA games. One popular Polymarket wager involving $22 million was on Cristiano Ronald: would he cry in his final World Cup match with Spain? Indeed, he did.
Card Counting
The municipal bond market is typically slow to adapt to change. It is still a very human-centered, over-the-counter business that is gradually incorporating electronic trading, auto quoting, artificial intelligence, and yes, event contracts. We see an increasing volume of events falling in the municipal arena: primary and election outcomes, ballot initiatives, and public policy. Some of the more popular contracts involve data center moratoriums, professional football team relocations, income and property taxes, weather events, and population changes – all now being followed with huge interest from muni analysts. We have not yet seen much in the bankruptcy and default space, but it seems inevitable that we will soon be counting contracts based on Chapter 9 prospects, yield moves, index performance, school and hospital closures, covenant misses, rating downgrades, toll road fee increases, airport project completion dates, and perhaps even senior living occupancy percentages.
Full House
Municipal bond traders, whether with colleagues on the same desk or with friendly rivals on the Street, have long been known to make side wagers on everything from lunch specials to sock colors and bond defaults. According to The Bond Buyer, one involved the American Dream Mall and Brightline bonds: which would default first. Kalshi recently started taking bets on whether the unfunded liability of Illinois’ five pension systems will top $145 billion this year, the authors reported. Some forward-looking thinkers reportedly see nonprofit prediction markets as a force for good, incentivizing borrowers to provide better and faster disclosure. Others see these platforms as offering a way to short munis and a way to better inform pricing. Still others, however, fear insider trading and view platforms as highly vulnerable to manipulation. For now, investors appreciate having real-time data, the so-called wisdom of the crowd, and take contracts into account when hedging risk and anticipating market-moving events. Courts are, in the meantime, working to resolve disputes between the federal government and several states seeking bans on what they see as outright threats to their lottery and sports betting revenue, and asserting state regulatory supremacy over the Commodity Futures Trading Commission. The Trump administration holds that prediction markets are swap markets and thus fall under the jurisdiction of the CFTC.
High Stakes
Some prediction markets operate with real money behind the trades, having accounts funded with crypto, debit cards, or bank transfers. Others just use “play money” or are featured parts of intelligence tournaments. Some of the most popular predictions in 2026 have involved control of the U.S. House in 2027, presidential nominees for 2028, Fed rate cuts, tariffs, and when the conflict with Iran will end. Polymarket probabilities currently lean in favor of a nuclear agreement with Iran — but not before 2028. And the odds of Iran imposing an official toll for passage through the Strait of Hormuz by October now sit at 69%. Some trades were, of course, upended when the ceasefire with Iran came to an abrupt end on Wednesday. Yet those who predicted this outcome may face accusations of insider trading, as many did back in May. In any event, the war is back on. For now, President Trump is calling it a “waste of time” to negotiate with Iran. He is now returning from a summit of NATO leaders in Ankara, Turkey where the agenda was dominated by Iran, Patriot missiles for Ukraine, OPEC+ production increases, European defense spending, and U.S. troop siting. The two-day meeting was rescheduled to accommodate President Trump’s appearances at 250th anniversary events.
Wildcards
Along with the President, investors headed into the long Independence Day holiday weekend on a cheery, patriotic, summer-high, sunny note. We wanted to believe that negotiations with Iran would soon lead to a peace agreement. We got jobs data that confirmed every economist’s view about the labor market, both weak and strong, each seeing what we wanted to see in the numbers. With oil prices back in the 60s, gas prices falling, stock prices at all-time highs, and wage growth along with inflation well off the 2022 highs, it started to look like a Fed rate cut might actually be possible. Then our electric grids went haywire amid the heat wave, Mother Nature rained on our parades, and Iran began gathering representatives from 100 countries to attend the six-day funeral for the ayatollah slain four months ago. The 800,000 fireworks filling the sky over our nation’s capital at midnight marked the end of our celebrations as well as our hopes for quickly finalizing all the terms of the June 17 Memorandum of Understanding with Iran. At this writing, oil prices are back up to $79 a barrel from the recent low of $71, the 30-year Treasury yield is at 5.09%, and the 30-year municipal general obligation benchmark yield is 4.26%. The Dow has dropped more than 550 points from the close last Thursday.
Many Happy Returns
The financial markets are quite sensitive to oil prices, inflation, and the latest screaming headline. But the tendency all year long has been to spring back and leap ahead in the belief that our economy is strong, the best in the world, that we are entering a new revolutionary era with artificial intelligence and quantum computing, and that troubles will be resolved. As we hurried into a long weekend of America pride, almost every asset class posted a positive return for the year. The Nasdaq was up 11.5%, the S&P 500 gained 9.96%, and the Dow was up 11%. Among commodities, steel, coal, and crude oil were all up over 20%. In the fixed income sector, munis are still the fixed income market to beat. Using the ICE Bank of America Merrill Lynch bond indices for benchmarks, on June 30, convertible bonds were up 20.5%. Non-rated munis were 3.67% higher, high yield munis were up 3.77% and investment grade munis up 2.19%. High yield corporates returned 1.96%, leveraged loans 1.41%, taxable munis 1.18%, mortgages 1.14%, and high-grade corporates 0.96%. Preferreds gained 0.37% and Treasuries 0.32%. Among the few classes suffering 2026 losses were Bitcoin, down 29.81%, and precious metals, off by as much as 21%.
Stack of Chips
The municipal bond market continues on a tear. Year to date volume surged with the $62 billion added in June, bringing the 2026 total to $297 billion, an increase of 5.6% over 2025. Investors are flush with reinvestment money: $42.6 billion principal and interest payments hit bondholder accounts on July 1 and another $16/5 billion is coming by the end of the month. A staggering total of $173.4 billion will be paid out between June 1 and August 31. Investors have searched for replacements at higher yields; many have added to separately managed accounts, while others have worked with advisers to grab individual bonds. In addition, $9.5 billion was added to municipal bond mutual funds and exchange traded funds in June, bringing the year-to-date total to $58 billion, according to CreditSights, well above the $15.3 billion at this time last year. High yield muni funds have seen net inflows for 13 straight weeks, and high yield new issue sales have meet with strong demand. So far this year, 38 senior living and care transactions have come to market with combined par of $3.31 billion. And there have been 53 charter and private school financings totaling $1.6 billion.
- HJ Sims is in the market this week with a $23.9 million BB+ rated improvement and refunding deal for Cornerstone Charter Academy, A Challenge Foundation Academy. This fourteen-year-old K-12 public school in Greensboro, North Carolina has 1,338 students enrolled and 1,804 on the current waitlist. Bonds are being issued through the Public Finance Authority. The $16 billion calendar also includes a $22.5 million BB-minus rated financing through the City of St. Cloud, Minnesota for Stride Academy, and an $89.7 million South Carolina Jobs-Economic Development Authority offering for Gray Collegiate Academy. The California Enterprise Development Authority plans a $32 million BBB-minus rated sale for the private Mirman School for Gifted Children in Los Angeles, and the California Statewide Communities Development Authority has a $51.5 million non-rated student housing transaction for Maison 613.
- Last week, HJ Sims came to market with an $11.8 million non-rated offering through the Public Finance Authority for Crown Leadership Academy, a pre-K-12 private school with 204 students in the Charleston, South Carolian area. We priced the bonds maturing in 2056 at par to yield 8.25%. The calendar was light ahead of the July 4 holiday, but among other sales, the Florida Development Finance Corporation brought a $42 million non-rated financing for Dreamers Academy in Sarasota structured with a 2056 final maturity priced at par to yield 7.25%, and the Illinois Finance Authority had a $16.5 million BBB-minus rated deal for the Belmont campus of Intrinsic Schools in Chicago featuring a 2045 term bond priced at 5.25% to yield 5.00%
Full Tables
We are halfway through the year now, heading into prime vacation season, so activity may slow and market moves become more exaggerated as strikes on Iran intensify and traffic through the Strait comes to another standstill. It is a good time for a break. Six months of AI, IPO, Middle East conflagrations, and overseas upheaval have turned investor sentiment from “greed” to “fear.” Those not on the beach or cheering at a World Cup match, however, will closely follow this week’s economic data: consumer credit, trade balances, existing home sales, jobless claims, the minutes from the last Federal Open Market Committee meeting, and the speeches made by three Fed officials on the circuit. There are 10 Treasury auctions, including key 10- and 30-year sales. Futures traders are largely convinced that rates will stay on hold when the FOMC meets on July 29 but currently see a 50% chance of a quarter point rate hike on September 16. There are 3 meetings before the November elections and quite a few pundits doubt that any rate moves will be made until December to avoid the kind of political accusations that clouded views of Fed independence less than two months ahead of the 2024 presidential election.
Betting on You
No new headlines are expected from Capitol Hill this week, where members are home campaigning with only four months until Election Day, or the Supreme Court, out of session until October after dropping a series of sizzling opinions (birthright citizenship, transgender athletes, mail-in ballots, executive power) in the closing days of the 2025 session. On June 30, the heavy demand for short maturities brought the 2-year muni benchmark yield down to 2.35% while the 2-year Treasury year climbed by 17 basis points to 4.17%. The only challenging month this year for munis was in March, at the start of the conflict with Iran. Since March 31, the 30-year muni yield has dropped 28 basis points to 4.19%, while the 30-year Treasury yield has climbed 4 basis points to 4.95%. We invite you to reach out to your HJ Sims representative for more perspective on the financial markets and the opportunities that lie ahead of you in this second half of our semiquincentennial year.