Market Commentary: Unforgettable

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by Gayl Mileszko

Many presidential election years are unforgettable: when candidates are “firsts”, when there is a true upset, when it takes weeks or months for voters to know the outcome. 2020 was already guaranteed an indelible spot in our memory banks. It will be unforgettable – but not in the sweet Nat King Cole way. It began with an impeachment, then came the pandemic, the polemics, the huge number of Democratic primary contenders, the Federal Reserve Bank interventions, the record levels of federal and campaign spending, the protests and riots and talk of police defunding, the debate over social media’s effort at content moderation, the postponement of the Olympics, the chasm over the third Supreme Court appointment. It has been a nasty, brutish year and has not always revealed America at its best. And 2020 is not over yet. At this writing, all the election year winners have not yet been declared but we know that, no matter what, the results will upset about half of the American populus. Financial markets, heads of state, and cable news anchors may take some time to adjust to the situation. Fortunately, this unforgettable year is almost behind us. But there are still 60 days until the new Congress is sworn in and 76 days until the inaugural ball. The one constant for us is the Fed and its monetary policy, and that is elevating our markets.

In the week leading into Election Day 2016, the Chicago Board Options Exchange Volatility Index (VIX), a measure of stock market anxiety that is often called the fear gauge, rose 40%. This past week, the gauge has only risen from 32.46 to 35.08. On Election Day in 2012, the VIX stood at 17.58, and in 2008 it was at 47.73. On the bond side, the performance of Treasuries, municipal and corporate bonds is more often driven by Federal Reserve activity, and Fed Fund futures prices currently indicate a 100% likelihood no change in rates when the Open Market Committee meeting concludes on Thursday. The markets have already priced in no changes for the next three years. The Dow at 27,480 and the S&P 500 are right where they were back in late February; the Nasdaq at 11,160 is not far off all-time highs. Oil prices at $37.66 have been relatively stable for five months. Gold prices at $1,909 an ounce are off the all-time highs of three months ago, but rising. The 10-year Treasury yield closed on Tuesday at 0.88%, and the 30-year at 1.65%, both roughly where they stood in early June. The 30-year tax-exempt benchmark at 1.71% is also the same yield as it was in early June. The 10-year AAA municipal general obligation bond yield last closed at 0.94%, where it stood at the end of February.

Municipal bond fund investors added another $582 million to mutual funds last week while U.S. and global equity funds faced $6.6 billion of withdrawals. State and local borrowers brought $11.6 billion of deals to market last week, raising municipal issuance totals for October to $65.2 billion, the second highest level on record. HJ Sims was in the market with two senior living financings. We underwrote an $89 million non-rated issue for Jefferson’s Ferry that was structured with a final maturity in 2055 and sold through the Town of Brookhaven Local Development Corporation with a 4.00% coupon at a premium to yield 3.75%. We also brought a $48.5 million BBB-minus rated transaction for Blakeford at Green Hills which featured a 35-year final maturity issued through the Metropolitan Government of Nashville and Davidson County Health and Educational Facilities Board with a 4.00% coupon yielding 4.40%. Among other life plan community transactions, the Henrico County Economic Development Authority issued $47.3 million of A-minus rated revenue and refunding issue for Westminster Canterbury Richmond priced at 4.00% to yield 3.19% in 2050 and the Public Finance Authority issued $50 million of A-minus rated bonds for eight Carmelite communities that had a final maturity in 2045 priced at 5.00% to yield 3.53%. In the charter school sector, the Pima County Industrial Development Authority sold $87 million of non-rated bonds for Edkey Charter Schools that had a 2055 term bond priced at 5.00% to yield 5.125%; the California Public Finance Authority issued $28.3 million of non-rated revenue bonds for California Crosspoint Academy that came with a 35-year maturity priced at par to yield 5.125%.

This week, the Federal Open Market Committee meets in Washington and the markets await the final outcomes of races where votes are still being counted. We congratulate those elected to federal, state and local offices. Public service in the age of social media in the midst of a pandemic-induced recession is extraordinarily challenging. Our newly elected leaders face harsh realities and deserve our support and best wishes. This week, voters spoke, the nation revealed its stars and stripes, the next campaigns begin, and life goes on. At HJ Sims, we are at your service, providing the right structures, financing and execution for our banking clients and outcome of income for our investors.

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Market Commentary: Landslides

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by Gayl Mileszko

The year 2020 still has more than two months to go but its dross is already plastered all over the record books. Many of us just want to flip the calendar forward and welcome a happy new year. Some would prefer to turn back the clock. But if we go back 100 years, we would find a time not unlike the current one where the country was battling a deadly pandemic as racial strife flared. As the last troops were returning from World War I, the Spanish flu was still raging in its third year. Membership in the Ku Klux Klan was increasing. Citizens wavered between supporting a future of isolation or globalism. Everyone yearned for normalcy. Provisions of the 131-year-old Constitution were hotly debated at the kitchen table and in state legislatures; and two amendments were adopted. The American workplace was changing dramatically and media began to impact our day-to-day lives. Station KDKA in Pittsburgh became the first commercially licensed radio broadcaster. For the first time, families who purchased radios heard the results of the presidential election as they were read off the telegraph ticker.

In 1920, Babe Ruth began playing for the New York Yankees, the National Football League was founded, and U.S. athletes won 95 medals at the Summer Olympics in Antwerp, Begium. A century later, the baseball season did not begin until July 23, many football teams are playing with no spectators allowed, and the Olympic games were postponed for the first time in history. At the start of the Roaring Twenties, many Americans were able to own a telephone and a car for the first time, the Holland Tunnel was funded, the Constitution was twice amended by the states to prohibit alcohol and grant women the right to vote, and the presidential election resulted in a landslide victory. In 2020, we have had a landslide of crises. Cars have been garaged and streets have been empty, the largest stimulus packages in U.S. history have been enacted to support a pandemic-stricken economy, constitutional provisions relating to the Electoral College, Supreme Court appointments, and impeachment have been hotly debated. Alcohol consumption has risen sharply as a result of coronavirus lockdowns, the 24/7 media have a dramatic impact on our lives, and voter-eligible turnout has been four percentage points higher for women since the 1990s.

As has been the norm this year, the financial markets are closely monitoring polls, early voting, pandemic statistics, vaccine progress, and stimulus negotiations. Discussions with colleagues and clients are dominated by talk of swing states, sweeps, mail-in ballots, turnout, ties and upsets. Investors are hoping for swift and clear results without post-election disturbances but, in a year full of the unexpected, that seems unlikely. So, some are shorting commodities or emerging market currencies, others are hedging with S&P 500 index puts or governments. With less than one week to go to Election Day, markets have quieted as many individuals as well as institutions sit back and wait for more clarity. We have had plenty of time to implement strategies limiting downside risk or position so as to pounce on opportunities in a post-election rally, vacuum, or selloff.

We expect to see volatility in any period of uncertainty. By one measure, the Chicago Board Options Exchange Volatility Index (VIX), the level has risen 23% this month and 136% since the start of the year. In many respects, we are surprised that the jumps have not been substantially higher. But the Federal Reserve has been, and remains, more than just a stabilizing influence in all markets. We have seen rallies of landslide proportions in the stock and bond markets. Even at this point in the recession, the Dow is only off by 96 points month-to-date while the S&P 500 is up 38 points and the Nasdaq is up 191 points. Oil prices have fallen 4% to $38.56 a barrel. Gold prices have gained $4.70 an ounce to $1,902. On the bond side, U.S. Treasuries have weakened in October: the 2-year at 0.15% is up 3 basis points, the 10-year at 0.80% has increased 12 basis points, and the 30-year at 1.59% is up 14 basis points. The BAA corporate benchmark yield has actually fallen 6 basis points to 2.96%. Tax-exempt municipal benchmark yields are up across the curve: the 2-year has risen 5 basis points to 0.18%, the 10-year is up 9 basis points to 0.96%, and the 30-year has increased 12 basis points to 1.74%.

This week marks the last trading week of October. The municipal calendar is expected to total $15 billion and HJ Sims is in the market with two new bond issues to finance expansion projects: an $86.4 million BBB rated transaction for Jefferson’s Ferry in South Setauket, New York and a $44.9 million BBB-minus rated at Blakeford at Green Hills in Nashville, Tennessee. Last week, we brought a $77.6 million non-rated revenue and refunding deal for John Knox Village in Pompano Beach, structuring the final maturity with a 4.00% coupon priced to yield 3.92% in 2050. On the equity side, the market is being rocked this week by the world’s largest IPO, a $34.4 billion share sale by Ant Group. Investors are also digesting U.S. corporate earnings reports; by the time the week is out, one third of the S&P 500 index components, or 186 companies will have reported third quarter results. More than $28 billion of high yield corporate bond issues have come to market so far this month as have $60 billion of investment grade deals.

Next week, as November begins and the world awaits our election tallies, our trading and investment professionals will be hard at work to advise and execute for our clients as always. We do not know if the 59th quadrennial presidential election will result in a landslide, a squeaker, or a victory eventually determined by the Congress or Supreme Court. We do know that this election will not turn out as did the first one in 1789 — with a unanimous vote by electors – or the one in 1920, when Alaska and Hawaii were not yet admitted to the Union. But our votes do count, our system will work as designed and, no matter the outcome, we will remain proud to work in the best financial markets and greatest country in the world.

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Market Commentary: Casting Ballots and Buying Bonds

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by Gayl Mileszko

Election Day typically stirs in us a multitude of feelings: excitement for our candidates, anxiety over the possibility of change, hope for the future of our family and country, pride in being an American exercising our right and privilege to vote. But the passion and patriotism reflected in Norman Rockwell’s classic mid-20th century images of voters is rarely evident this millennium. Only 50.3% of eligible voters turned out in for the 2018 mid-term elections, and 60.2% in 2016. So far this year, because the pandemic has led to expanded absentee and early voting, some 30 million have already cast their ballots. However, this has not made any of us immune to the polarizing chatter on network, cable and social media that is likely to continue long past the final tallies.

At HJ Sims, our investment professionals are sorting through the same issues, policy and economic implications, in the effort to determine what is best for our families, for you, for our communities, our industry, and our country. We are trying to tune out all the hype and hysteria to keep our attention on the things we can control or manage. We do not have a crystal ball, but we do have our years of experience in a multitude of market cycles. Like you, we are being told to expect extreme volatility to accompany scenarios involving a likely landslide, a clean sweep, or contested results that take us past inauguration day. After the events of this year, we will not be surprised by anything. But we take a lot of the talk and polls with a grain of salt in the belief that the system established by our 231 year-old Constitution, as amended, will work as intended. Markets may suffer, in our view, but they will soon absorb the results and move forward in line with expectations for further economic recovery.

We move on after every election with our lives and our plans for college, purchasing a new home, saving for retirement, living our retirement. Our recommendations to clients are properly tailored to individual situations and needs, and we have been in touch with you throughout the course of the pandemic. In the coming weeks and months, we will be in contact many times to assist you in being properly positioned to withstand some uncertainty while meeting your short- and long-term investment goals. As you know, markets fluctuate and performance varies. Algorithmic trading may produce some erratic sessions, and there is always year-end profit-taking and tax loss harvesting. But if you own bonds, we advise that you keep a few facts at hand to provide some reassurance in uncertain moments:

  • Just about every possible scenario has been well documented and analyzed and voters are braced for a close election and numerous possible outcomes, unlike in 2016.
  • The Federal Reserve intends to keep rates near 0% until 2024. That policy is supportive of risk assets and keeps longer-term bond yields lower. The Fed has intervened swiftly and effectively to stabilize markets in the past two recessions. They have a $7.1 trillion balance sheet and a variety of tools available including liquidity facilities and yield curve control, which involves buying enough long term bonds to keep prices from plummeting. Chair Jerome Powell has a term that ends in 2028 and the members of the Open Market Committee have staggered terms that go out to 2034.
  • U.S. securities meet with strong global demand as haven investments in a world with $16 trillion of bonds with negative yields.
  • During the 34 days of uncertainty in the 2000 Bush-Gore contest, 10-year Treasury yields fell 9% or 52 basis points from 5.86% to 5.34%. The yield on the Bond Buyer Revenue Bond Index yield dropped 3% from 5.79% to 5.59%. The S&P 500 Index lost 4% or 60 points, and the Russell 2000 fell 6% or 29 points.
  • Portfolio valuations will vary but coupon income remains steady in all but a very small percentage of cases. We believe that credit surveillance is essential and that risks should be regularly assessed in election as well as non-election cycles.
  • Mutual fund flows are likely to be a much bigger factor on muni rates than election outcomes themselves. Municipal bond funds have seen $24.4 billion of inflows this year and have been positive for all but 1 of the past 23 weeks. If funds sell off in any type of temporary herd panic, prices may fall for a time but there may be great opportunities to acquire individual bonds at lower or discounted prices.
  • Significant other technical factors contribute to the prevailing high muni prices. New issue supply has for years been insufficient to meet demand from investors seeking tax-exempt bonds, particularly those in states with high and increasing tax rates. The coming months will see large redemptions, calls and maturing bonds, producing cash looking for muni reinvestment opportunities.
  • No major policy changes happen overnight; it took two years to enact tax reform and health care reform under single party control in Washington. Since 1945, Democrats have had control 37% of the time, Republicans 16%, and the White House and Congress have been split 47%. Main Street and Wall Street tend to prefer more legislative gridlock than less.
  • Markets have been awaiting news of agreement on another fiscal stimulus, but this has so far been elusive. Stocks have traded up on every hint of progress as well as on positive corporate earnings. So far in October, at this writing, the Dow is up 413 points, the S&P 500 has gained 64 points and the Nasdaq 311 points. The BAA rated corporate bond index yield has dipped 14 basis points to 2.88%. The fear index has risen by 11%, oil is up by 1.5%, and gold has gained $12 an ounce. As assets have moved toward risk, Treasuries and munis have weakened. The 2-year Treasury yield has risen 2 basis points to 0.14% while the AAA rated general obligation bond benchmark is up 5 basis points to 0.18%. The 10-year Treasury at 0.76% is 8 basis points higher in October and the comparable muni yield has risen 7 basis points to 0.94%. The 30-year Treasury and long muni bond yields have both risen 10 basis points to 1.55% and 1.72%, respectively.

With less than two weeks to go before Election Day, borrowers are keeping the markets hopping. $15 billion is expected in the investment grade corporate bond market and $8 billion in the high yield sector after last week’s $20 billion supply. Last week, the $18 billion muni calendar included an $80 million Ba3 rated general obligation bond issue for the City of Detroit that saw orders from 30 institutional investors totaling $780 million. The 30-year maturity was re-priced at 5.50% to yield 4.12%. In other high yield deals, the Essex County Improvement Authority issued $29.5 million of BBB- rated revenue bonds for North Star Academy Charter School of Newark, structured with 2060 term bonds priced at 4.00% to yield 3.58%, and the Arkansas Development Finance Authority brought a $19.8 million non-rated deal for Responsive Education Solutions that had a 2051 final maturity priced with a 4.00% coupon to yield 4.18%.

This week, Markets have their eye on third quarter earnings, jobless claims, a slew of housing data, and the Fed’s Beige Book. The municipal slate is expected to total between $15 and $21 billion this week, with between $5 and $10 billion coming as taxable. The final presidential debate is scheduled for Thursday night, and the Tampa Bay Rays and Los Angeles Dodgers meet for the first three games of the 116th World Series.

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HJ Sims Advises Presbyterian Villages of Michigan on Financing Independent Living Rental Expansion Project

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October 15, 2020

CONTACT: Tara Perkins, AVP | 203-418-9049 | [email protected]

HJ Sims Advises Presbyterian Villages of Michigan on Financing Independent Living Rental Expansion Project

FAIRFIELD, CT– HJ Sims (Sims), a privately held investment bank and wealth management firm founded in 1935, is pleased to announce the successful September 2020 financing in the amount of approximately $38.18 million for Presbyterian Villages of Michigan (PVM), an award-winning non-profit, aging services network assisting people of all faiths and diverse communities across MI since 1945.

Sims completed its first financing with PVM in 2015, serving as underwriter for PVM’s Series 2015 bonds. Since 2015, Sims has continued to provide PVM with advisory services for planning future capital expansion projects, monitoring debt capacity and analyzing the obligated group structure.

In 2002, PVM acquired land immediately adjacent to its Village of East Harbor campus for an expansion project. In 2018, The Village of East Harbor completed a new Health and Wellness Center. The current project being financed comprises the final phase of the Health and Wellness Center project, and a new independent living rental expansion project known as Harbor Inn. The Harbor Inn campus will include 12 rental single-level ranch homes, 36 rental independent living units, and a three-story apartment building, encompassing 60 independent living units.

PVM’s board, based on analysis provided by Sims, decided to absorb the Harry & Jeannette Weinberg Green Houses at Rivertown Neighborhood (Weinberg) into the Obligated Group, in addition to adding Harbor Inn to the Obligated Group. Sims worked with PVM and Fitch Ratings to secure a “BB” rating for the new bond issuance, and existing Series 2015 bonds. Weinberg is a 501(c)(3) designated, MI non-profit corporation located in Detroit. PVM has a Use Agreement with PACE Southeast MI, a joint venture of Henry Ford Health System and PVM, for the exclusive use of the Weinberg. Absorbing Weinberg into the Obligated Group allowed PVM to refinance the Weinberg Green Houses’ outstanding CDFI debt as part of the 2020 tax exempt bond financing.

The financing successfully closed on September 30, consisting of $18.18 million of Series 2020A bonds underwritten by Sims, and $20 million Series 2020B direct placement draw-down bonds purchased by Huntington Public Capital Corporation.

The Series 2020B bonds were issued in a floating-rate mode and hedged with a forward-starting SWAP beginning at the end of the draw period, and cancellable in five years, as well as a seven-year final maturity matching the loan tenor. The projected combined cost of capital of the 2020A and 2020B bonds is 3.48%.

“Following up on the 2015 restructuring and financing, HJ Sims went back to work with PVM’s Board and management leadership to provide key guidance to PVM’s next steps in expanding and strengthening its Obligated Group, resulting in the 2020 restructuring and financing, remarkably during COVID-19. Sims provided excellent leadership to the financing team. PVM looks forward to working with our partners at Sims as we immediately explore other financing needs to expand and reposition our service offerings,” Said Brian Carnaghi, SVP of Finance and Business Development, CFO, Treasurer, PVM.

Financed Right® Solutions—Aaron Rulnick: [email protected], 301-424-9135 | Patrick Mallen: 301-448-7111,  [email protected].

ABOUT HJ SIMS: Founded in 1935, HJ Sims is a privately held investment bank and wealth management firm. Headquartered in Fairfield, CT, Sims has nationwide investment banking, private wealth management and trading locations. Member FINRA, SIPC. Testimonials may not be representative of another client’s experience. Past performance is no guarantee of future results.  Facebook, LinkedIn, TwitterInstagram.

Market Commentary: The Week to Shop for Discounts

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Timetables are all topsy turvy this year so it should come as no surprise that the holiday shopping season kicks off this week, 73 days ahead of Christmas, 58 days ahead of Hanukkah. The headline event is Amazon’s members-only Prime Day, but there are competing sales promotions from other major retailers including Walmart, Target and Best Buy. Some 70% of Americans are planning to do at least some of their gift buying on Tuesday and Wednesday, and Amazon alone may rake in $10 billion or more. When sales are tallied, they are likely to smash all previous records for the top shopping days of the year. Consumers hunting for bargains but still reluctant to shop in person can find many on line, where retail sales are expected to grow 18.5% over last year. On top of health concerns over shopping in crowded stores and worries that Black Friday or Cyber Monday orders will not arrive in time, shoppers are being lured into early purchases by massive marketing campaigns and deep discounts.

In the bond markets, you really have to hunt to find anything good offered at discounted prices. It will help to work with your HJ Sims financial professionals and traders whose mission it is to achieve the outcome of income all year long. We scour offerings from institutions as well as other broker dealers for higher yielding bonds – corporate, tax-exempt and taxable munis — priced at attractive discounts. Last week, for example, when A+ rated Mastercard 3.35% bonds due in 2030 traded at $117.415, we sold Baa2 rated Kohl’s 4.25% due in 2025 at $99.682 and BB+ rated Ford Motor Credit 3.40% of 2026 at $94.25. Also last week, as Aa1 rated Los Angeles County Metropolitan Transportation Authority 5.00% sales tax revenue bonds due in 16 years traded at $124.361, we sold BB rated Presbyterian Villages of Michigan 4.75% of 2053 at $97.55. In the taxable muni sector, the Port Authority of New York and New Jersey sold A+ rated 5.647% bonds due in 20 years at prices as high as $142.029 and the University of Massachusetts Building Authority sold AA rated bonds with a 3.013% coupon due in 2043 at $102.622. We sold A2 rated Berklee College of Music bonds with a 3.086% coupon due in 2049 at $93.006.

In the primary municipal market last week, the calendar was the largest of the year so far at $16.1 billion and most new issues sold at premiums. Among higher yielding new issues, the Guam Department of Education sold $65.4 million of B+ rated certificates of participation for John F. Kennedy High School structured with 20-year term bonds priced at 5.00% to yield 4.90%. The Arizona Industrial Development Authority issued $19 million of BB+ rated bonds for Pinecrest Academy of Nevada including a 2053 term bond priced at 5.00% to yield 4.05% and $15.2 million of BB rated bonds for Mater Academy of Nevada that had a 30-year maturity priced at 5.00% to yield 4.25%. The Industrial Development Authority of Pima County issued $9.5 million of non-rated bonds for Synergy Public School due in 2050 priced at par to yield 5.00%.

Both the Treasury and municipal markets were hit with heavy supply last week. The U.S. Treasury auctioned $110 billion of 3-year, 10-year and 30-year securities in sales that were characterized as “fair” to “uninspired” while municipals easily digested a weekly calendar that was the largest of the year at $16 billion. State and local governments and non-profit borrowers are still accelerating plans for market entry in advance of the elections less than three weeks away so as to bolster liquidity, finance projects at low rates, and shore up programs whacked hard by the pandemic. Tax-exempt yields are still equal to or higher than U.S. Treasuries and both rose in tandem over the course of last week. The 2-year Treasury yield increased by 3 basis points to 0.15% while the 2-year tax-exempt AAA muni yield rose by 2 basis points to close at 0.15% as well. The 10-year Treasury yield weakened by 7 basis points to 0.77% as did the comparable muni which closed at 0.95%. The 30-year government yield ended the week 9 basis points higher, while the muni long bond closed up 10 basis points at 1.73%. The 10-year Baa rated taxable muni yield climbed 9 basis points to 2.62% while the comparable corporate bond yield dropped 2 basis points to 2.99%.

The coronavirus pandemic has been changing household, corporate and governmental behavior for more than seven months now. Most of us have become much more budget conscious. Many of us are buying exclusively online now, or focused on supporting local businesses or brands, projects and investments that are socially and environmentally conscious. Last week, Fitch Ratings categorized four areas of potentially enduring change impacting our lives and the credit picture for many borrowers. Their research identifies the work-from-home trend which impacts sales and income taxes, utility demand, property values, housing demand, traffic and mass transit; population shifts to lower tax and less dense areas; e-commerce and the virtual delivery of services, education and entertainment; and a reversal of globalization trends affecting international air travel and cargo volumes, trade, and domestic manufacturing and supply chains to name just a few. Time will tell how much has been fundamentally and permanently altered. In the meantime, we continue as we always have — to hunt for the best discounts.

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Market Commentary: October Surprises

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Ward 71 is the nickname for The Medical Evaluation and Treatment Unit at Walter Reed National Military Medical Center. It is called the Presidential Suite, but other high-ranking administration officials and military officers, First Ladies, Members of Congress, and Supreme Court Justices also receive medical care there. Not much descriptive information is published, but it is said to be a 3,000 square foot space taking up a full floor in one of 88 buildings on the 243-acre campus located about nine miles from the White House. The Department of Defense runs the facility, but this specific area is under the direct control of the White House. It has a private entrance and rooms said to include an intensive-care unit, a kitchen, a living room to receive visitors, bedrooms, a secure conference room, and space for the President, Chief of Staff and White House physician to work.

Walter Reed is known as the President’s Hospital and the Nation’s Medical Center. It was named for an Army surgeon who was the leading researcher to discover that yellow fever was transmitted by mosquitoes. The facility’s history of service to soldiers dates back to 1909, and to sailors and marines since 1942. In 2011 it was transformed by the joining and relocating of the Walter Reed Army Medical Center in Washington, D.C. to the National Naval Medical Center in Bethesda, Maryland, on a site opposite the National Institutes of Health. It is now the world’s largest joint military medical center with 2.4 million square feet of clinical space that includes a total of 244 patient beds, staffed by more than 7,000 Army, Navy and Air Force medical personnel.

This is where President Trump was admitted last Friday evening after the surprising announcement that he tested positive for the coronavirus. It was the first time in 39 years that a sitting U.S. President was hospitalized, and the first time this close to an election, hence the news caused quite a stir around the world. The diagnosis suddenly presented the first serious health threat to a President in office since the attempted assassination of President Ronald Reagan. On Monday night, however, President Trump was released after being treated for three days with an experimental antiviral drug and a combination antibody. It is not known how his condition and recovery will impact his schedule, if his quarantine or illness will prohibit him from traveling and participating in person at the October 15 debate in Miami, for example. At this writing there are only 28 days to Election Day and health issues surround both septuagenarian candidates for the nation’s highest office. In addition, three Republican senators have tested positive, raising new questions about proceedings on the nominee to the Supreme Court, votes, and the odds of maintaining a majority in the upper house.

We are more than nine months into a year that has been full of what political groupies call “October surprises” upending the country. No doubt there will be more in the days, weeks and months ahead, as 2020 continues its stampede into the record books. The Federal Reserve and U.S. Treasury are using all their powers and tools to stabilize the economy, but some sectors have been crushed. It is difficult to imagine how much more can be done for the economy, and how and when we will manage to undo any setbacks. Some investors are wary, others see us as leading the world out of the recession, and many are just trying to stick to our long-term strategy and cope with all the day’s news as best way possible.

Last week, the third quarter came to an end as did the federal fiscal year. The President signed into law a continuing resolution to fund the government at current levels through December 11, removing the threat of a shutdown and at least one volatility trigger ahead of the elections. The Dow fell 2.3% in September but gained 7.6% during the quarter. The S&P 500 Index lost 3.9% last month, but was up 8.5% in the third quarter. The NASDAQ dropped 5.2% in a September tech selloff but rose 11% during the third quarter. The U.S. Treasury issued more than $1.7 trillion of bonds, notes and bills last month, bringing the total for the year to an astonishing $15.5 trillion, 28% more than was issued in all of 2019. Corporate high yield bond issuance in September was the third busiest month on record with more than $47 billion of volume according to Bloomberg; yields jumped 43 basis points during the month. Corporate investment grade volume was the seventh highest on record at $164.4 billion, bringing year-to-date issuance to $1.54 trillion. Corporate bond returns, as measured by the ICE BoAML Index, were negative 0.26% but gains so far this year are +6.61%.

Municipal bond volume increased 26.3% to $47.28 billion, the highest issuance in the month on records dating back to 1986. Year-to-date volume stands at $341.8 billion with $102.58 billion coming as taxable. Muni returns, as measured by the ICE BoAML Index, were negative 0.07% in September but total +3.18% after nine months. High yield munis returned +0.22% last month and are up 0.93% this year. Taxable munis lost 0.34% in September but are up 10.08% in 2020. In the final trading week of the quarter, muni bond funds saw outflows for the first time in 20 weeks. The $611 million of net withdrawals slightly reduced total fund assets to $830 billion.

At the end of September, the 2-year Treasury yield stood at 0.12%, basically flat on the month and on the quarter. The 10-year yield at 0.68% dropped 2 basis points in September but rose 3 basis points on the quarter. The 30-year yield at 1.45% also gained 2 basis points on the month and 4 basis points in the third quarter. The 10-year BAA corporate bond yield at 3.02% was flat on the month but plummeted 37 basis points on the quarter. High grade municipal bonds, as measured by the AAA MMD benchmark fell 3 basis points in September and 14 basis points during the quarter. The 10-year muni finished at 0.87%, up 6 basis points in September but down 3 basis points for the quarter. The 30-year at 1.62% also rose 6 basis points last month but was basically flat in the third quarter.

September brought several unwelcome surprises in the form of wildfires, hurricanes, a spike in COVID-19 cases, and an unusual debate. Markets moved on any news of incremental progress with a vaccine, Fed Chair Powell’s warning that the recovery remains highly uncertain, a dot plot signaling low rates through 2023, and the explosive partisan divide over the Supreme Court vacancy occurring with the passing of Ruth Bader Ginsburg. Investors waited in vain all month for passage of a fourth federal stimulus bill. Stress on the nation’s largest public transportation system led to a single notch rating downgrade; it was seen by many as the beginning of a long series of inevitable cuts reflecting the extent of damage wrought by six months of shutdowns on U.S. infrastructure.

The combination of extremely low rates and strong investor appetite for U.S. government, municipal, corporate and asset-backed bonds is attracting new as well as frequent and distressed borrowers. A+ rated Coca Cola had a $1.9 billion tender of notes with coupons ranging from 1.55% to 4.20%. Baa3/B+ rated Delta Air Lines raised $9 billion in the industry’s largest debt sale ever; its senior secured notes due in 2028 had a coupon of 4.75%. Uber Technologies placed a $500 million of CCC+ rated debt due in 2028 at 6.25%. A defaulted California project planning to convert rice cultivation debris into fiberboard sold $53 million of non-rated bonds due in 2032 at a yield of 8.169%. Credit analysis and surveillance is critical at this point in the political-economic cycle. We encourage you to consult with your HJ Sims representative to do a wellness check on your portfolios to reduce the risk of unwelcome surprises.

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HJ Sims Underwrites $135 Million Expansion for Phase II of the Toby and Leon Cooperman Sinai Residences of Boca Raton


October 5, 2020


CONTACT: Tara Perkins, AVP | 203-418-9049 | [email protected]


HJ Sims Underwrites $135 Million Expansion for Phase II of the Toby and Leon Cooperman Sinai Residences of Boca Raton

FAIRFIELD, CT– HJ Sims (Sims), a privately held investment bank and wealth management firm founded in 1935, is pleased to announce the successful September 2020 financing in the amount of approximately $135 million for the Toby and Leon Cooperman Sinai Residences of Boca Raton (Sinai). Located in Boca Raton, Sinai is a life plan community managed by Life Care Services comprised of 234 independent living units, 48 assisted living units, 24 memory-support units, 60 skilled nursing beds and common amenities. Sinai opened in January 2016 and achieved stabilized occupancy in less than a year. Sinai is located on The Jewish Federation of South Palm Beach County Florida campus.


The Sinai Board determined to undergo an expansion to add 111 independent living units to the community. Sinai and its development partner, LCS-D, had commenced pre-development work to shorten its post-financing construction period and were driving towards a September 15 vertical construction start, amidst COVID-19. Sinai experienced strong pre-sale velocity despite the pandemic, and achieved 70% pre-sales during the bond marketing process.


Due to the accelerated post-financing construction period, and Sinai’s track record of rapidly filling independent living units, coupled with COVID-19 impacted constraints on bank financing, Sims and the Sinai team issued tax-exempt fixed rate bonds for the entire expansion. Sinai financed a portion of its development costs with taxable bonds, creating a $5 million taxable tranche of Entrance Fee Principal Redemption Bonds®.


Sims underwrote Entrance Fee Principal Redemption Bonds® up to approximately 91% of the initial entrance-fee pool of the expansion. The Series 2020 Bonds were robustly oversubscribed, permitting adjustment of the scale on the pricing date such that the long-term bonds (2055 maturity) were priced at 5.00% to yield 4.60%, permitting Sinai to borrow approximately $135 million with only a $2.4 million increase in maximum annual debt service over their existing maximum annual debt service. Sims facilitated the implementation of modifications to Sinai’s existing master trust indenture – providing greater flexibility on testing of debt service coverage (switching to annual versus quarterly testing) to accommodate intra-year swings in entrance fee turnover.


“Once again, HJ Sims has provided their exceptional professional expertise providing pre-development and construction development financing, in the amount of $135 million, for the Phase II Expansion of the Toby & Leon Cooperman Sinai Residences of Boca Raton. Sims was the underwriter in 2014 for the $214 million bond issuance for the Sinai Residences initial start-up and development financing. Sinai Residences is now one of the most successful premiere luxury senior living facilities in the country.

The Sims’ team’s preparedness, availability, scheduling, communication, personal touch and extensive knowledge of the bond industry and markets allowed the Sinai Expansion project to be funded on-time and at exceptional rates. An owner could not ask for better representation. I look forward to the continuation of our outstanding relationship, and future funding opportunities, with Sims,” said Mel Lowell, COO, Jewish Federation of South Palm Beach County, and Board Member, Sinai.

Financed Right® Solutions—Aaron Rulnick: [email protected], 301-424-9135 | Melissa Messina: 203-418-9015,  [email protected] | Brady Richardson 443-340-9980,  [email protected] | Patrick Mallen: 418-9009,  [email protected].

ABOUT HJ SIMS: Founded in 1935, HJ Sims is a privately held investment bank and wealth management firm. Headquartered in Fairfield, CT, Sims has nationwide investment banking, private wealth management and trading locations. Member FINRA, SIPC. Testimonials may not be representative of another client’s experience. Past performance is no guarantee of future results.  Facebook, LinkedIn, TwitterInstagram.


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HJ Sims Secures $6.5 million Additional Debt Financing for Capital Improvements


CONTACT: Tara Perkins, AVP | 203-418-9049 | [email protected]

HJ Sims Secures $6.5 million Additional Debt Financing for Capital Improvements

FAIRFIELD, CT– HJ Sims (Sims), a privately held investment bank and wealth management firm founded in 1935, is pleased to announce the successful August 2020 transaction in the amount of $6.5 million additional debt financing for capital improvements for the Philadelphia Protestant Home (PPH). PPH operates a continuing care retirement community in northeast Philadelphia, featuring 266 independent living units, 175 personal-care units and 126-bed nursing facility.

PPH has been funding capital improvements from general fund revenues. To efficiently manage cash-flow, PPH elected to finance $6.5 million of upcoming capital improvements. Sims, as financial advisor, developed a financing plan that provided for the funding of the required capital improvements, while implementing a structure that maintained maximum flexibility to maintain their debt service at manageable levels.

Prior to engaging PPH’s existing banking partner, Citizens Bank (Citizens), Sims worked with the PPH Fiscal Oversight Committee to develop structuring options. Following engagement of Citizens, Sims led the effort in working with Citizens to finalize the debt structure, within the confines of the bank’s requirements. Due to impacts of COVID-19, Sims negotiated a modified Debt Service Coverage test to the benefit of PPH. The additional obligations were structured as parity debt with PPH’s outstanding Series 2015 obligations.

Citizens provided $6.5 million of senior debt financing, fully amortizing in ten-years, and a five-year interest-only period followed by monthly principal amortization. The obligations were structured with a five-year, PPH-owned par call provision, and were issued on a tax-exempt basis through the Philadelphia Authority for Industrial Development (PAID). This provision was paramount as PPH’s existing Series 2015 Obligations mature in seven years, while Citizens could only defer principal on the Series 2020 obligations for five years. This call feature will allow PPH to restructure future debt at minimal cost.

Following closing of the Series 2020 Bonds, PPH locked in a synthetic fixed-rate on the debt. Sims served as Swap Advisor for the swap transaction, which also bears a mirroring, PPH-owned par termination right in five years, to align with the Citizens’ loan.

Sims, Citizens, PAID and the financing team worked diligently with PPH to secure final approvals, including navigating through unanticipated delays followed by the onset of COVID-19, to successfully close the financing.

“The HJ Sims’ commitment to incomparable client services has once again served The Philadelphia Protestant Home well. Despite the unforeseen challenges and uncertainly resulting from the pandemic, the Sims’ team provided valuable insight and unwavering advocacy to assure our financing needs were achieved. We are thankful for our partnership, the integrity, and collaboration with Aaron Rulnick and Siamac Afshar, for always putting what is in the best interest of PPH, first,” said John Dubyk, CEO, PPH. Philadelphia Protestant Home

Financed Right® Solutions—Aaron Rulnick: [email protected] or 301-424-9135 | Siamac Afshar: [email protected] or 267-360-6250.

ABOUT HJ SIMS: Founded in 1935, HJ Sims is a privately held investment bank and wealth management firm. Headquartered in Fairfield, CT, HJ Sims has nationwide investment banking, private client wealth management and trading locations. Member FINRA, SIPC. Facebook, LinkedIn, TwitterInstagram.

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Market Commentary: Evolving Ecosystems

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Through Facebook and Twitter, mountains of data providing insight on human behavior are available to advertisers and social scientists to study and exploit. Via algorithms used in video gaming, datamining is also being applied to the analysis of behavior in nature, where technology now provides oceans of data documenting the social behavior of fish, for example, to help us better understand and model ecosystems. As it turns out, fish form dynamic social networks well outside of schools, taking cues from each other and telegraphing critical information such as where it is safe to go and eat.

These days it is hard for those of us on solid ground to know where it is safe to go out — never mind what is safe for us to invest in. The Federal Reserve, the executive and legislative branches of government at the federal, state and local levels have taken unprecedented actions to both depress and bolster our economy since January. Social media, social distancing, home delivery services, N95 masks, UV-C light, air purifiers, corticosteroids, Vitamin D, convalescent plasma, all appear to be aiding us in battling this pandemic. Common sense, gut instinct, and trusted family, friends, colleagues, and investment advisers are also guiding us as we endeavor to protect our savings and boost our investments in an evolving ecosystem amid an ocean of uncertainty.

We are six months a pandemic that has felled more than 1 million around the world. Our nation has been struck by a recession of historic proportion. But many students are back in the classroom. Consumer confidence just jumped to 101.8 in September, up from 86.3 in August. Daily TSA Airport Passenger screenings have risen from 87,534 on April 14 to 873,038 on September 27. Retail sales have exceeded pre-crisis levels since June. New home sales have risen at the fastest pace since 2006. The Federal Reserve Chair, in testimony before Congress, refers to our economic recovery as “highly uncertain” and points to the need for additional stimulus. But the last jobs report reflected positive momentum. Data on September, the last we will see before November 3, will be reported on Friday. Third quarter GDP will be reported a mere five days before Election Day.

The stock market has had some significant intraday twists and turns in September trading and many strategists expect volatility to increase as we draw close to the presidential election. At this writing with one more day of data to go, equity indices are all down for the month: after swinging by more than 2300 points the Dow is down more than 3%, the S&P 500 has fluctuated by more than 340 points and has fallen over 165 points, and the Nasdaq has lost 6% with intramonth highs and lows varying by as much as 1400 points. On the commodity side, oil prices have fallen nearly 9% to $38.86 and gold prices are down more than 4% to $1,886 an ounce. Bond markets have been remarkably steady. Treasuries have traded in a narrow range all month, strengthening overall. The 2-year yield stands at 0.12%, the 10-year at 0.65% and the 30-year at 1.42%. The 10-year BAA corporate bond yield is flat on the month at 3.01%. Investment grade corporate issuance now exceeds $1.53 trillion in 2020. High yield corporate issuance at $335 billion is already higher than it has been for any full calendar year on record; this month’s volume exceeds $45 billion but the sector is expected to post a loss of 1.30%.

In the municipal bond market, the AAA general obligation bond 2-year benchmark yield has dropped 3 basis points this month to 0.13% while the 10-and 30-year yields have risen by 2 basis points to 0.83% and 1.58%, respectively. Municipal Market Analytics reports that munis have been essentially unchanged for 22 consecutive sessions, beating a 40-year old record. Approximately 40% of primary market sales in September have been federally taxable. Investors took in $25 billion of cash from bond redemptions and maturities; $2.2 billion flowed back into municipal bond mutual funds. Funds have seen 20 straight weeks of net inflows. Year-to-date, the BofAML Municipal Index is up 3.31%; the High Yield Index has returned 0.93% and the Taxable Muni Index 10.86%

September muni volume will likely exceed $50 billion for the second consecutive month. Among the higher yielding transactions last week, Lake County, Florida sold $126 million of non-rated bonds for Lakeside at Waterman Village in a financing that included 2055 term bonds priced at 5.75% to yield 5.58%. The Washington Housing Finance Commission issued $81.3 million of non-rated bonds for Rockwood Retirement Communities structured with 2056 term bonds priced with a coupon of 5.00% to yield 5.25%. The North Carolina Medical Care Commission came to market with a $53 million BBB-minus rated deal for Friends Homes that had 30-year term bonds priced at 4.00% to yield 3.48%. The Public Finance Authority of Wisconsin was in the market with a $22.8 million non-rated financing for Freedom Classical Academy In North Las Vegas structured with 2056 term bonds priced at 5.00% to yield 4.89%. The Colorado Educational and Cultural Facilities Authority sold $18.7 million of non-rated bonds for Liberty Tree Academy that came with 30-year term bonds priced at par to yield 5.75%.

This week, the markets are focused on the first presidential debate, quarter-end portfolio rebalancing, the Friday jobs numbers, prospects for agreement on a pre-election stimulus bill, Treasury loans to U.S. passenger airlines, economic data from China, outflows from high yield corporate bond funds, and a string of Federal Reserve speakers. As we enter the final quarter of the year, we encourage you to contact your HJ Sims advisor to review your positioning and strategy.

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Market Commentary: Twisting Path to Election Day

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In the 40 days to Election Day, we follow a path with many twists and turns, certain only to be surprised by what is around the next corner. We have already had quite a journey this year, one that has taken us into a pandemic, a recession, and in directions never before traveled in terms of fiscal and monetary policy, lockdowns, and behavioral change. The appointment of a new Supreme Court Justice may lead us into a right turn, but other developments could have us bear left. The Federal Reserve has used all of its paving powers to try and keep our economy us on a straight and narrow course – one that may extend out to mile markers in 2023.  Financial markets have not always followed it. Stocks have stumbled this past week under a range of pressures. But since Labor Day, the bond markets have been keeping a steady pace. The municipal bond market has seen almost no change in price for three consecutive weeks.  Benchmark yields offer us no clue on future direction, although market history since 2014 tells us that the quarter end tends to take us on a downward slope. At this writing the 2-year Treasury yield and the 2-year AAA municipal general obligation bond yield are at 0.13%, the 10-year Treasury yields 0.66% and the tax-exempt counterpart yields more at 0.84%. The 30-year Treasury yields 1.42% while the 30-year muni is higher at 1.58%.

Last week’s $9 billion municipal calendar met with another warm welcome.  HJ Sims came to market with an $18.1 million BB rated issue for Presbyterian Villages of Michigan and sold the 4.75% Public Finance Authority bonds due in 2053 at a discount to yield 5.00%.  Among other senior living deals, the North Carolina Medical Care Commission had a $96 million BBB+ rated deal for Presbyterian Homes that featured 5.00% bonds due in 2050 at a yield of 3.03%. The Kalamazoo Economic Development Corporation issued $47.8 million of BB rated bonds for Heritage Community’s Revel Creek expansion that had term bonds due in 2055 priced at 5.00% to yield 4.40%. Franklin County, Ohio brought a $27.8 million BBB rated financing for Ohio Living Communities that included 2045 term bonds priced at 4.00% to yield 3.73%.  In the education sector, the St. Paul Housing and Redevelopment Authority issued $26 million of BB+ rated charter school bonds for Hmong College Preparatory Academy that had a maximum yield of 3.55% in 2055, and the California School Finance Authority brought a $10.1 million non-rated deal for Real Journey Academies that had a 39-year maturity priced at 5.00% to yield 3.98%.

At these, or even lower rates prevailing for most issuers, the volume is expected to increase for the next five or six weeks. So much uncertainty surrounds Election Day and outcomes that may not be known for days, weeks or months that borrowers are rushing to bring deals to market as soon as possible.  This week’s muni calendar is expected to exceed $12 billion. Corporate high yield issuance is only $2.5 billion away from a record high for the year and investment grade issuance is expected to total $30 billion. We encourage you to contact your HJ Sims financial professional to discuss whether your portfolio is well positioned for the twists and turns in the months ahead, how you might better prepare, and which opportunities to anticipate.

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Financing the Perception of Safety


September 22, 2020

CONTACT: Tara Perkins, AVP | 203-418-9049 | [email protected]

Financing the Perception of Safety
Senior Living Survey Finds Residents Feel Safe, Glad to be Part of a Community during Pandemic 

FAIRFIELD, CT– HJ Sims (Sims), a privately held investment bank and wealth management firm founded in 1935, participated in the Senior Living COVID-19 Sentiment Report, which surveyed 4,000+ current and prospective senior living community residents, assessing their thoughts/ feelings about the COVID-19 pandemic. Lynn Daly, Executive Vice President, Sims’ Chicago office, authored content included in the 104-page report, COVID-19 Sentiment Report: A Survey of Independent Living Desirability & Safety.

The Survey, published by Plante Moran Living Forward and Retirement DYNAMICS®, was distributed to 23,000+ residents, prospective residents and staff at senior independent living communities nation-wide.

Among the results, it was discovered that of more than 4,000 current and prospective senior living community residents, 77% of current senior living community residents were somewhat or strongly supportive of living in a community during the Pandemic, with 87% of prospective community residents feeling somewhat or strongly glad to be living at home during the Pandemic. Click here to download the report.

While surveyed prospects worried about social isolation and daily tasks when living in their own homes, Survey results showed a slight decrease in their likelihood to move into an independent living community due to the Pandemic. The survey revealed:

  • 92% of staff felt their community responded well to Pandemic.
  • 93% of residents felt their community took all precautions.
  • 85% of staff agreed residents “are safer in their community than in their previous homes.”
  • 77% of residents said they were “glad to be living in a community during the Pandemic,” with 86% affirming they were glad they moved.
  • Prospective residents (61%) and residents (68%) felt socially isolated during shelter-in-place.
  • 74% of prospective residents reported their time frame for a move has been unchanged.

While independent living communities received high marks from seniors on cleanliness, sanitation and communications, communities earned low grades on recreation activities, dining and technology offered during shelter-in-place.

The Survey received a 21.1% overall response, and was sent to independent senior living communities throughout the U.S., generating 7,000+ comments. The results indicate that prospective senior living residents recognize that living in a community would provide them peace of mind, safety and security. However, they are happy to be home during the Pandemic. For senior living providers and operators, making small operational changes can improve prospective residents’ perceptions, with the hope that they will make the commitment and enjoy what moving to a campus would provide.

“HJ Sims is deeply passionate about the providers we serve. We appreciate that COVID-19 has stretched our provider clients in unimaginable ways, including resident and staff safety, retention/recruitment of staff, uncertainty and negative press. We welcome helping those in the industry become more knowledgeable about COVID-19 and are pleased to provide relevant data on what providers are doing right, and where they can improve to align themselves with the perceived needs of consumers and staff. We have tremendous faith in the non-profit senior living model and embrace the opportunity to support its sustainability and resilience,” said Daly.

Ms. Daly has 30+ years of experience working exclusively with nonprofit organizations on their financing needs. Read more here.

Lynn Daly: [email protected] | 312-505-5688.

ABOUT HJ SIMS: Founded in 1935, HJ Sims is a privately held investment bank and wealth management firm. Headquartered in Fairfield, CT, HJ Sims has nationwide investment banking, private client wealth management and trading locations. Member FINRA, SIPC. Facebook, LinkedIn, TwitterInstagram.

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Market Commentary: Rock, Paper, Scissors

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Hope is what sustained the 102 passengers of the Mayflower who departed from Plymouth, England for the New World four hundred years ago this week. In far more grim circumstances than we face today, on September 16, 1620, there were 41 Protestant Separatists or “Saints” – better known today as the Pilgrims – seeking freedom from the Church of England. A larger group of commoners including servants and children dubbed “Strangers” simply gambled the little they had on a new life in an unknown place in northern Virginia. They were 50 men whose average age was 34, 19 women, 14 teenagers and 19 children. The oldest was 64 and the youngest, Oceanus, was born during the voyage, which was financed by London stockholders. Crammed together with sheep, goats, chickens and dogs on the gun deck only 58 feet long, 24 feet wide and 5.5 feet high, they spent a grueling 66 days at sea during the height of the storm season. They ate old bread and dried fruit and salty fish; with no fresh drinking water, each person was rationed a gallon of beer per day. Nearly five percent of those aboard died en route. Yet, they were filled with gratitude to meet their new world.

The Mayflower passengers arrived in New England on November 11 and a group of 41 managed to draft and sign a 200-word document that came to be known as the Mayflower Compact, the first document to establish the framework for our self-government. It was a simple text, one worth a review in this complicated era where there are too many federal laws in force to count and even more regulations among the 50 subject matter titles in the Federal Register. Signatories agreed to “solemnly and mutually, in the presence of God, and one another; covenant and combine ourselves together into a civil body politic; for our better ordering, and preservation and furtherance of the ends aforesaid; and by virtue hereof to enact, constitute, and frame, such just and equal laws, ordinances, acts, constitutions, and offices, from time to time, as shall be thought most meet and convenient for the general good of the colony; unto which we promise all due submission and obedience.”

Plymouth Rock was said to have “received the footsteps of our fathers on their first arrival” in Plymouth Harbor on December 21, 1620. But, as the Pilgrims and the non-believers slowly built their town, they largely remained aboard the Mayflower in tiny quarters for another four harsh winter months. They endured outbreaks of scurvy, pneumonia and tuberculosis, malnutrition and exposure. Only 52 of the passengers departing from England, including 5 women and half of the 50-man crew, survived that first winter.

There are an estimated 10 million living Americans and 35 million people around the world who are descended from the original passengers on the Mayflower. Several hundred thousand who are not descended from the Aldens, Bradfords or Winslows still risk untold peril every year to come to America by sea, land and air. Latest federal data show that 7.8% of our population self-designates as having English roots, 14.7% German, 12.3% Black or African-American, 10.9% Mexican, 5.5% Italian, 3.3% French, 3% Polish. The U.S. population exceeds 331 million now outnumbered by only China and India. More than 40 million of us were born in another country. 56 million of us are aged 65 or older, but our median age is 38.3 years. Approximately 6.3 million of us work in financial services.

In difficult times, it is important to maintain perspective in order to remain hopeful, much like the Mayflower passengers; we must hold steadfast to the belief that the world will improve. In a time where we are concerned for our loved ones, and in an era where we feel nervous, we must remember that back in the time of the Mayflower, the death rate of the newcomers exceeded 50%. At this writing, the COVID-19 death rate per 100,000 population is 0.06%. However, with tragedy comes a sense of gratitude for what we do have, for what kindness exists in the world. And, we hold hope for a vaccine, we have appreciation for our medical workers who treat those who are need, we gather to help strangers and neighbors, alike. Overall, this is a time to come together—we can experience this as an opportunity to unite.

Perspective helps us process the deaths of more than 196,000 Americans at this writing. With a changing world, twenty-nine million of us are receiving some type of unemployment assistance and many more have had hours or pay cut and income slashed. We have become adaptable as a significant number of children can only go to school online, but some are unsupervised and others have only limited access to the internet and learning. Small businesses are closing by the thousands in cities and small towns—some transitioning to an online model with the evolution of these times. On top of all of this, hurricanes and floods have battered the people of the southeast and megafires have destroyed nearly five million acres in the West. After six-plus months, we see some pockets of recovery but much of the nation is exhausted, numbed, or in a state of shock. The luckier among us gripe about inconveniences: gyms and salons closed, lost vacations, reunions and celebrations postponed. But at night, most of us toss and turn, worry about our college students, our parents in health care facilities, a second wave of illness, our weight, our retirement, the vaccines being rushed to market, how long we can postpone medical tests and procedures, whether our vote will count in November. Life has changed dramatically for many in these past seven months.

The financial markets are always looking to the future and the view from Wall Street is still much rosier than the one from Main Street right now. Investors have come to look to the Federal Reserve as the Rock of Gibraltar, a veritable Pillar of Hercules – a mythical point once marking the limit to the known world, now widely viewed as our barrier to unthinkable loss. So far so good. But the Fed can only loan money. So, state and local governments and markets have also looked to Washington for fiscal relief. Again: so far so good. Maybe too good. Federal spending topped $6 trillion for the first time last month and the federal deficit has topped $3 trillion for the first time; Congressional appropriators are discussing even more fiscal spending but cannot reach agreement. Eventually, they will have to take the scissors to the budget, but for now we are in historic spending mode. The President has taken certain executive actions, and perhaps no more legislative is necessary or possible until after the elections, so it is to the unelected officials of the central bank that we look for any further immediate relief if needed. 

The Fed’s monetary policy committee, the Open Market Committee, met this week for the 8th time this year and provided reassurance that they will be accommodative, hold interest rates at rock-bottom levels through 2023 and basically do whatever else is required for our economy. Economic data show that we have regained at least half of the loss of output so we may see third quarter gross domestic product above 25%. CNN and Moody’s Analytics have teamed up to produce a “Back-to-Normal” Index that actually shows the U.S. at 80% of pre-pandemic levels.

Despite the pandemic-induced recession and pain experienced across virtually every sector, the S&P 500 is up 5.27% this year, the tech-heavy Nasdaq is up nearly 25%. Gold has gained more than 28%.  The 2-year Treasury has strengthened significantly; its yield has dropped lost 143 basis points and currently stands at 0.13%.  The 2-year municipal general obligation bond yield has fallen 91 basis points to 0.13%. The 10-year Treasury at 0.67% is down 124 basis points. The 10-year muni has decreased 60 basis points to 0.84% and the 10-year Baa corporate bond yield at 2.98% is down 72 basis points.  The 30-year Treasury yield has fallen 95 basis points to 1.43% and the comparable muni yield has shed 51 basis points to stand at 1/58%.

Corporate and municipal borrowers continue to vie for space on the calendar of buyers.  So far this year, tax-exempt muni issuance at $337 billion is up 33% year-over-year. Corporate bond issuance as a whole totaled $210 billion in August alone. High yield corporate issuance exceeds $308 billion so far this year, up 74% from 2019.  Mutual fund investors have added a net of $19.2 billion to municipal bond funds, $139.4 billion to investment grade corporate funds and $40.8 billion to high yield corporate funds. With record Treasury issuance this year, outstanding debt at 9/15 totals $26,790,503,839,118.28 and returns are up about 9.31%.

Last week was shortened by the Labor Day holiday but it was by no means a quiet one. HJ Sims underwrote a $107.3 million A-minus rated revenue bond issue for Presbyterian Retirement Communities which we structured with tax-exempt term bonds due in 2055 priced with a coupon of 4.00% to yield 3.10% and taxable bonds due in 2050 priced at 4.00% to yield 4.125%.  Among recent deals on the high yield calendar, there was a $17.1 million BB+ rated California School Finance Authority issue for Classical Academies that had a thirty year term bond priced at 5.00% to yield 3.42%; a $13.3 million Ba1 rated Public Finance Authority financing for KIPP Charlotte that included 35-year term bond priced at 5.00% to yield 4.50%;  and a $10.3 million BB+ rated New Hope Cultural Education Facilities Finance Corporation issue for Southwest Preparatory Academy in San Antonio that came with a 2050 maturity priced at 5.00% to yield 4.00%.

This week, Plymouth, Minnesota has a $41.7 million general obligation bond sale planned. Local Massachusetts news reports that Plymouth Rock, the Landing Place of the Pilgrims, the symbol of our country’s first hardships and struggles, a representation of our freedom and desires for a better life, an international attraction typically drawing a million tourists every year, has unfortunately been vandalized for the second time in one week. Yet, we persevere.

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Market Commentary: Alternatives

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There are only 54 days to Election Day (at the time of this writing). We can tell by the attack ads on TV, the robo calls, the mailers, the endorsements, the increasingly slanted campaign coverage from all sides. The fight is often framed in terms of Democrats versus Republicans, conservatives versus. liberals, progressives versus moderates, left versus right, Red versus Blue, incumbents versus challengers, the Coasts versus the Heartland, or Us versus Them. It is said to be the most important election ever, once again. And, as the sportscaster in Rocky IV exclaimed, “It’s a gutter war – no holds barred!”  On the presidential ballot, we do not hear much about the fifteen third party and independent candidates. So, for those taking due diligence seriously, it may seem that considering all the alternatives, the choices are more difficult. But, as the big day draws nearer, our choices dramatically narrow to essentially two as we examine our options from the perspective of our vested interests to either find the candidate who will best represent us or “pick the lesser of the evils” as some believe. As Henry Kissinger once said, “The absence of alternatives clears the mind marvelously.” Speaking of alternatives…

The alternative minimum tax (AMT) and the ordinary income tax are two parallel income tax systems in the U.S. The former was enacted in 1969 by Congress after the public became outraged to learn that a significant number of higher income filers had so many itemized deductions that they paid no income tax. So, to ensure that everyone pays what is viewed as their “fair share,” taxpayers must calculate their taxes under each system and pay whichever is higher. But, since the AMT was not indexed for inflation until 2013, over time more and more retirees and middle class taxpayers became subject to the higher rate. About five million filers were paying the AMT in 2017 when the Tax Cuts and Jobs Act was enacted. The new law applies to tax years 2018 to 2025. It increases the AMT exemption (generally $113,400 for married couples in 2020), indexes it to inflation, and sets the income levels at which the exemptions phase out at much higher levels (generally $1,036,800 for married couples filing jointly in 2020). Many of the tax breaks that triggered the AMT for middle class taxpayers have been changed, so there needs to be quite a few tax preference items to trigger it. These include incentive stock options, a large amount of long-term capital gains, some types of accelerated depreciation, and interest on private activity bonds. Fewer than 200,000 households are now impacted and corporations are no longer exposed to AMT liabilities.

Income from private activity bonds that fund private company projects that benefit the public such as stadiums, airline terminals, and solid waste facilities may be subject to the AMT, meaning that interest income would be taxed at the applicable AMT rate. This could be 26% or 28%. That would be a major hit to muni yields already at or near historic lows. It is easy to tell if a bond is subject to the alternative minimum tax. Since 1986 it has been required that a tax attorney provide an opinion stating whether or not the interest on each muni bond is a tax-preference item subject to the AMT. The opinion is clearly printed on the cover of each official statement. Investors must read any muni bond fund prospectus more carefully. Some funds, including Vanguard’s, may invest as much as 20% of their assets in private activity bonds so a portion of their income distributions may be subject to the AMT.

Investors are advised to speak with their tax advisors before buying bonds, or funds with bonds, that are subject to the AMT.  For those who are not subject and not likely to become subject, we encourage you to contact your HJ Sims advisor.  AMT bonds can offer some incremental yield pickup in the range of 20 basis points in the current market. They also provide access to different sectors of the muni market such as pollution control projects, student loans, single-family housing, and public-private venture expressways.  Among major issuers of both AMT and non-AMT bonds are the Port Authority of New York and New Jersey and the City and County of Denver, Colorado. Last week, The New York Transportation Development Corporation issued $1.51 billion of Baa3 rated special facilities revenue bonds subject to the AMT for the Delta Air Lines Terminal C and D redevelopment project at LaGuardia Airport. The 2045 term bonds priced at 4.375% to yield 4.55%.

HJ Sims was in the market last week with a $134.9 million Palm Beach County Health Facilities Authority bond issue for the Toby and Leon Cooperman Sinai Residences of Boca Raton expansion. We structured the non-rated Series A bonds with a 2055 maturity priced at 5.00% to yield 4.60%. The Series B-1 bonds due in 2027 were priced at 3.00% to yield 3.05%, the Series B-2 bonds due in 2025 were priced at 2.625% to yield 2.75%, and the Series C taxable bonds due in 2024 had a 3.875% coupon priced to yield 4.00%. Among other senior living financings, the Economic Development Corporation of the City of Grand Rapids and the Michigan Strategic Fund brought $47.1 million of BBB-minus rated refundings for United Methodist Retirement Communities and Porter Hills Presbyterian Village with final maturities in 2044 priced at 5.00% to yield 3.88%.

This week’s muni calendar is expected to total $7 billion but the investment grade corporate market may see as much as $50 billion of new issues.. At this writing, the 2-year AAA municipal general obligation bond yield stands at 0.15% versus the 2-year Treasury at 0.14%. The 10-year muni benchmark is at 0.83% while the comparable Treasury yield is 0.68%.  The 30-year tax-exempt yield is 1.57% and the Treasury is lower at 1.43%. The 10-year A rated corporate bond yields 2.22%. Stocks are weaker for the third session, sinking to a four-week low. Oil at $36.87 a barrel has fallen to prices last seen in mid-June. Gold at $1,930 an ounce is 6% off its record August high. This week’s economic calendar includes Job Openings, the Producer and Consumer Price Indices. The Senate returns from recess to vote on an alternative stimulus measure and the nation pauses on Friday, the 19th anniversary of September 11 to honor the memory of those lost and pay tribute to heroes we will never forget.

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Market Commentary: Under Pressure

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We live in a world where every inch of our body is subjected to atmospheric pressure of about 14.7 pounds per square inch (psi) at sea level. We don’t do well with abrupt increases, but if the pressure rises gradually, we are able to tolerate a lot more — something even in the range of 400 psi. There are, of course, other pressures placed upon us: pressures to be perfect, to be successful, to fit in, to be fit. From physics, we recall that the only characteristic of pressure is magnitude. From life, we know that magnitude fluctuates and that it often cannot be controlled.

For six months now, governmental policies developed in response to the pandemic have placed unprecedented pressures on individuals, families, groups, businesses, and communities. Some are folding under the pressure, other have exploded, some have adapted, others thrive. Some take medication for relief, others find release in other forms: prayer, kickboxing, community service, grants, loans, forbearance. Many state and local governments and other enterprises working with shaky budgets are unwilling to accept what may be permanent changes in revenues and expenses, and hold their breath for a fifth windfall from Washington. Financial markets, on the other hand, have enjoyed 11 years of monetary policy windfalls in the form of low rates, frequent injections of liquidity, and an ever-expanding balance sheet. So far, none have cracked under the strain of record levels of debt issuance by the U.S. Treasury and American corporations, the worst collapse in GDP in our history, 27 million unemployment claims, hundreds of bankruptcy filings, $26.7 trillion of national debt, a $4 trillion federal budget deficit, $110 billion of state budget shortfalls, and unfunded pension liabilities of $1.62 trillion. Quite to the contrary.

S&P 500 has more than fully recovered from the March coronavirus lockdown shock and is up 8.3% on the year to 3,500 as of August 31. The Nasdaq is up a staggering 31% in 2020 to 11,775. Gold has gained 30% and is now priced at 1,971 an ounce. The 2-year Treasury yield at 0.13% has plummeted 143 basis points. The 10-year is down 121 basis points to 0.70%. The 30-year at 1.47% is 91 basis points lower. The 10-year BAA corporate bond yield has fallen 68 basis point to 3.02%. In the tax-free sector, the 2-year AAA municipal general obligation bond yield has dropped 88 basis points to 0.16%, the 10-year is down 63 basis point to 0.81% and the 30-yield has fallen 53 basis points to 1.56%.

Last week, the Fed indicated that it will continue to monitor the pressure gauge, remaining accommodative regarding rates and tolerating periods of higher inflation in order to focus on keeping unemployment low. The forward-looking stock market, full of optimism for coronavirus treatments and vaccines and pleased with the better than expected economic data, continued to rally. But inflation is not welcome in the lexicon of bondbuyers, so a pressure switch was triggered.. Municipals and Treasuries both weakened; for tax-exempts, it was the third consecutive week of higher yields. Muni investors, flush with cash from more than $47 billion of maturing and called bonds in August added a total of $9.5 billion to mutual funds and ETFs despite increasing credit concerns. On the month, Treasury returns fell 1.20%. The general muni market as measured by the ICE BofAML Municipal Index lost 0.34% while the High Yield Index gained 0.42%. So far this year, Treasuries are up 9.02%, munis are up 3.25%, taxable munis are up 10.45%, and corporate bonds with maturities of 15 year and longer are up 9.05%.

Primary municipal bond volume in August exceeded $40 billion for the third straight month, propelled by $12.6 billion of taxable issuance. In the high yield sector, the Hastings Campus Housing Authority in California sold $406.8 million of non-rated bonds with a final maturity that went all the way out to 2061 priced at 5.00% to yield 4.95%. The Public Finance Authority issued $73.2 million of non-rated bonds for Whitestone Senior Living in Greensboro, North Carolina structured with 2055 term bonds priced at 5.25% to yield 4.56%, and a $20.8 million non-rated transaction for Pine Springs Preparatory Academy in Holly Springs, North Carolina that had 2055 term bonds priced at 6.25% to yield 6.618%. The North Carolina Medical Care Commission came to market with a $47.8 million non-rated deal for Pennybyrn at Maryfield that included a 2050 maturity priced with a 5% coupon to yield 4.09%. The Arizona Industrial Development Authority brought a $28.5 million non-rated financing for Linder Village in Meridian, Idaho with a single maturity in 2031 priced at 5.00% to yield 5.245%.

This week, HJ Sims is in the market with a $135.8 million expansion financing for the Toby & Leon Cooperman Sinai Residences of Boca Raton. The non-rated bonds are being issued by the Palm Beach County Health Facilities Authority and are structured with maturities in 2024, 2025, 2027, and 2055. Among other deals planned for this week is a $1.3 billion Baa3/BB+ New York Transportation Development Corporation issue for Delta Airlines at LaGuardia Airport Terminals C & D, a $274 million Southern Ohio Port Authority financing for PureCycle, a $162 million BBB/BB+ rated Metropolitan Pier and Exposition Authority deal for McCormick Place, a $48.2 million BBB- rated Michigan Strategic Fund/Grand Rapids Economic Development Corporation transaction for Porter Hills Presbyterian Village, and a $16.5 million BB+ rated California School Finance Authority financing for Classical Academies.

Markets will be closed on Monday as America takes the long Labor Day weekend to decompress and celebrate the many contributions made by its workforce of 160 million to the strength and prosperity of our nation. We hold closest in our thoughts the 27+ million who are unemployed and under employed as a result of the pandemic and hope that, with the help of personal and professional networks, that their searches are soon successful and talents again rewarded.

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Market Commentary: Neither Snow Nor Rain Nor Low Yields

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The first American post office was located in a bar in Boston, and no one who studies American history would be surprised to learn this. The historic 1639 site has since been replaced many times over and is now home to a 42-floor skyscraper of mixed office and residential use in the downtown area. So, Hinsdale, New Hampshire now holds the record for the country’s oldest continuously operating post office, a clapboard structure on Main Street that still boasts the original brass postal boxes. That location is one of 31,322 currently managed by the United States Postal Service, an independent agency of the Executive Branch, with roots dated back to 1792 when first authorized by the U.S. Constitution. Its 630,000 employees handle 48% of the world’s mail volume, operate one of the largest civilian fleets on the planet with nearly 228,000 vehicles, and place itself at the core of a $1.6 trillion mail industry with more than 7.3 million workers.

There has been a lot of attention focused of late on this agency and its prominent, perhaps integral, role in the coming elections. If many of us decide not to vote in-person at polling sites, as expected, will it be able to process millions of mail-in ballots securely and on time? Under the post 9/11 Mail Cover Program, they already photograph the front and back of every piece of U.S. mail as part of the sorting process, and we currently entrust them to handle 471 million pieces of mail every day, 36 million of our annual address changes, and 80 million of our money orders. Many of our local postal workers are highly trusted as neighbors and friends, better known to us than are any other government representatives, relied upon for critically needed deliveries. In the early days of parcel post, even children were “mailed” back and forth between parents and grandparents on rural routes. But, over the years, the postal mission of serving the public good was in large part intertwined with a business model that has become outdated by technology. It is seen by some as a poster child for mismanagement, a target for privatization, or a black hole unworthy of further taxpayer subsidies.

Ben Franklin was the first U.S. Postmaster General and Louis DeJoy is the 75th to hold that role. DeJoy is the second highest paid government official after the President and, since June, has presided over the nation’s largest retail network — bigger than McDonald’s, Starbucks and Walmart combined – paying $2 billion in salaries and benefits every two weeks, overseeing one of the nation’s oldest law enforcement agencies, straining under losses of $2.2 billion between April and June, $11 billion of debt, and Congressionally imposed limits on rate increases as well as requirements for pre-funding retiree health benefits. DeJoy, a CPA and former logistics executive, was just hauled before several Congressional committees in urgent virtual hearings, peppered with questions on his recent policy changes, and led on record to commit to delivering ballots within one to three days of being mailed. He was unable to cite the cost of mailing a postcard (35 cents) but was thankfully not asked to try and recite the famous words engraved on the front of New York City’s Farley Post Office: “Neither snow nor rain nor heat nor gloom of night stays these couriers from the swift completion of their appointed rounds”, written by the ancient Greek historian Herodotus in the 5th century B.C. in reference to messengers in the Persian Empire.

The House of Representatives came back from recess for a rare Saturday session to pass a bill providing $25 billion in emergency funds for the USPS and halt any changes to its operations until after the November election. The funds would be in addition to the $10 billion loan made by the Treasury in July under a provision of the CARES Act. If additional funds are approved by the Senate and White House, they would likely come in the context of a larger stimulus package on which no consensus has been reached since May. Main Street Americans, many struggling with budgets in the hundreds and thousands of dollars find it hard to process discussions involving billions and trillions. And yet these numbers pepper the daily headlines. One trillion is a thousand billion. One billion seconds ago, it was 1988. One trillion seconds ago it was roughly 30,000 B.C. A trillion dollars in $100 bills stacked on top of each other would be 789 miles high. A United Nations policy brief projects that the pandemic will cause $1 trillion in losses to the tourism industry. More than $1.4 trillion if investment grade corporate debt has been issued so far this year. Apple’s market capitalization hit $1 trillion in August of 2018 and it topped $2 trillion last week. The U.S. budget deficit has climbed to a record $2.81 trillion. The total size of the municipal market is $3.9 trillion. The stock market has surged by $13 trillion since its March 23 low; at this writing, the S&P 500 at 3,456 and Nasdaq at 11,589 have risen to record highs. The Chinese economy totals $14 trillion and the U.S. economy totals $21 trillion. Governments and central banks have already committed $20 trillion to pandemic relief efforts The U.S. debt exceeds $26.5 trillion. Assets in U.S. funded and private pension plans exceeded $32 trillion in 2019. The largest banknote on record, 100 Trillion, was issued in Zimbabwe in 2008 at the peak of a hyperinflationary period; it was worth $33 on the black market.

The International Capital Markets Association estimates the size of the global bond market at $128.3 trillion. Bond traders, however, are working with yields that are microscopic. At this writing, the 10-year Treasury yields 0.71%. The comparable sovereign yield in Japan is 0.03%, in the United Kingdom, Spain, and Portugal it is about 0.30%, in Canada it is 0.62%, in France -0.12%, in Germany -0.41%, and in Switzerland -0.47%. The 10-year top-rated tax-exempt municipal general obligation bond yields 0.75%. The U.S. can-maker Ball Corporation recently made history by selling 10-year BB+ rated bonds at 2.875%, the lowest coupon ever in the high yield market for a bond with a tenor of 5 years or longer, according to Bloomberg. There is some nice yield, however, to be found in the U.S. corporate and municipal markets for those able to tolerate some credit and duration risk.

At HJ Sims, neither price trends nor fund flow levels nor light dealer inventories nor lack of primary supply stays our traders from the hunt for and swift execution of purchases and sales for our income-seeking clients. We scour the high yield muni and corporate markets for our clients and offer opportunities to those who contact us with their interests and risk guidelines. Last week, the Tarrant County Cultural Education Facilities Finance Corporation brought a $131.4 million non-rated deal for MRC Stevenson Oaks in Fort Worth that featured 2055 term bonds priced at par to yield 6.875%. The Massachusetts Development Finance Agency had a $56.6 million BB+ rated financing for Milford Regional Medical Center that had a final maturity in 2046 priced with a coupon of 5.00% to yield 3.27%. The Florida Development Finance Corporation issued $14.4 million of non-rated bonds for UCP Charter Schools structured with 2050 term bonds priced at 5.00% to yield 4.70%. The City of Topeka had a $12.4 million non-rated financing for senior service provider Midland Care that included 20-year tax-exempt bonds priced at par to yield 4.00%.

This week, more schools re-open with hybrid learning plans, the world’s foremost economists gather for the first virtual Jackson Hole symposium, and the first virtual Republican National Convention convenes a week after the first virtual Democratic National Convention. U.S. and Chinese trade officials meet, riots continue to upend cities from Portland to Kenosha to New York, and Hurricane Laura threatens our citizens in Texas and Louisiana. There are now more than 179,023 deaths associated with CV-19 in the US. As this summer comes to an end, our thoughts, prayers, and good wishes are with all of the students, families, caretakers, healthcare providers, government officials, party leaders, legislators, thinkers, negotiators, public safety officials, businesses, associations, and market-makers working so hard to help us endure and transcend this pandemic.

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