by Gayl Mileszko

The holidays are upon us so this is the last full trading week of December and our last market commentary of 2020. We sigh because this year on the trading desks there is none of the usual cheerful talk about travel plans, baby gifts, and family gatherings. In fact, the trading desks are vacant as they have been for the last 10 months. Like others in so many industries, our fixed income traders have been hard at work in home offices in New Jersey, Massachusetts, Florida, North Carolina and Virginia, communicating by Skype and cell phone, email and Bloomberg, Webex and landlines for most of the year. Like our banking, sales, and operations teams in Connecticut, Texas, Pennsylvania, Maryland, Illinois, Minnesota, California and Puerto Rico, they have juggled busy work and home lives without missing a beat in serving our valued clients thanks to their professionalism and our marvelous tech staff. And, like the rest of us, they are united in their desire for the next two weeks to be joyful and peaceful ones, grateful for the opportunity to count blessings with loved ones and count down to a brand new year, a turnaround year for our economy and the people, businesses, schools, institutions so badly hurt by the pandemic.

In Washington, these are the final days of the 116th Congress, a lame duck session. As is typical for this time of year, lawmakers are late in trying to hammer out the details of the $1.4 trillion omnibus government spending bill for the fiscal year that began on October 1. They are also moving toward an agreement on that frustratingly elusive second stimulus to bring relief and some measure of comfort to small businesses and non-profits, the unemployed, those in health care and education, and all in need of vaccinations. Main Streets are quiet, pedestrians and decorations are sparse. Households are advised to limit holiday celebrations, order gifts on-line, reinvent caroling, and Zoom with Santa. It is only on Wall Street where things jingle as the Fed-fabricated Santa Claus rally which began in late March is still underway.

This has been a year like no other. The world experienced its first deliberate policy-induced recession in a concerted effort to suppress the spread of a virus. Governments took control over almost every aspect of life and corner of the world. There have been tragic losses. As the brightest minds, the largest dollars, and highest priorities have been devoted to finding treatments and vaccines, negative rates continue to dominate global markets, and government borrowing has risen to mind-numbing levels. But U.S. stocks and bonds have had a wonderful life. The usual correlations are askew and returns disconnected from the reality experienced by billions around the globe. Central banks have opened wide all the money spigots. Their massive asset purchases have created some artificial markets. The Bank of Japan, for example, has become that country’s largest single owner of equities. Here, the target federal funds rate was lowered from the target of 1.50-1.75% at the start of the year to 0.00-0.25% on March 16 and appears likely to remain in that range for several more years. Our Fed has been buying $80 billion a month in Treasuries and $40 billion in mortgage securities since June. Within a very short period, they created and ran 11 new funding, credit, liquidity and loan facilities supporting everything from commercial paper to corporate and municipal bonds to foreign monetary authorities. As a result, market confidence has soared and new issuance and performance records have been set and re-set.

At this writing, the Dow has risen more than 4.6% this year to surpass 30.000. The S&P 500 is up nearly 13% to 3,647. The Russell 2000 has gained almost 15% and stands at 1,913. The Nasdaq has been the biggest winner at 12,440 with gains of more than 38%. More than $140 billion has been raised in nearly 400 initial public offerings this year, exceeding the last full-year high in 1999 during the dot-com boom. Volatility has flared and abated throughout 2020 on lockdown, vaccine, election, Fed, and stimulus news. The VIX currently stands at 24.72 after starting the year at 13.78 and hitting a high of 82.69 on March 16. In the commodity markets, oil prices have fallen 23% from early January but have now steadied in the $47 range after sinking to the unheard of negative $37.63 on April 20. Gold prices are up 20% this year to $1,828 but rose as high as $2,060 on August 6. Bitcoin is among the year’s biggest winners, having advanced 167% to $19,135.

In the bond markets, debt issuance has surpassed expectations and smashed records. With interest rates at historic lows and liquidity needs at all-time highs, issuance has soared. Investment grade companies have sold about $1.7 trillion in the primary market, a new record. High yield corporate debt sales have exceeded $428 billion. Municipal bond issuance at roughly $425 billion will likely exceed the records set in 2007 and 2016. In the global flight to safety, investor demand for short Treasuries brought yields to new lows. When adjusted for inflation, many yields turned negative. The 3-month Treasury yield stands at 0.08%. The 2-year yield has plunged 93% from 1.56% to 0.11%. The 10-year Treasury yield at 0.89% has been cut in half and since the start of the year. A new 20-year Treasury bond began trading on May 21 and currently yields 1.47%. And the 30-year yield is down 32% from 2.38% to 1.62%. In the corporate bond market, 10-year BAA rated bond yields have fallen 100 basis points to 2.70%. In the tax-exempt space, mutual funds have seen inflows of $31.1 billion and muni ETF’s have taken in $13.1 billion. AAA muni benchmarks have all toppled more than 70 basis points. The 2-year MMD has fallen by 86% to 0.14%, the 10-year is down 51% to 0.70, and the 30-year at 1.38% is 34% lower than where it began the year at 2.09%.

Years from now, when rates eventually rise, we look back and marvel at the low rates available to borrowers and the miniscule yields confounding investors from households to mutual funds, life insurers, banks and foreign buyers. Last week, the Puerto Rico Aqueduct and Sewer Authority was able to sell $1.37 billion of non-rated bonds at a premium to yield 4.15% in 2047. New York’s JFK International Airport sold BBB rated bonds for the Terminal 4 project yielding 2.11% in 2042 last week. Scholarship Prep Schools in California sold non-rated bonds at 5.00% in 2060. The University of Connecticut just issued $279 million of A1 rated bonds yielding 1.69% in 2041. HJ Sims brought a $30 million financing through the Westchester County Local Development Corporation for The Knolls continuing care retirement community in Valhalla that we structured with noon-rated bonds due in 2055 priced at a premium to yield 4.90%

Investors who have been in the market all year have done very well across asset classes. On top of all the gains in the equity market, U.S. Treasuries are up 8.28%, high yield corporates 4.2%, investment grade corporates 9.3%, convertibles 44.3% and preferreds 5.1%. Municipal bond indices are up 4.99% and within the muni sector, taxable bonds are up 11.52%, and hospital bonds are returning 6.05%. High yield munis are up 4.48% and are likely to be among the stars of 2021.

Before the year comes to a close, we have the 13th and final Federal Open Market Committee meeting of 2020, data releases on retail sales, housing starts, home sales jobless claims, inflation, spending, consumer sentiment. We approach the end of 2020 with sadness over coronavirus losses and angst over the damage wrought on our nation. There are 10.7 million unemployed, and 17 million behind on rent and mortgage payments. Just two months into the new fiscal year, our federal deficit totaled $429.3 billion. The national debt at $27.4 trillion amounts to $218,704 per taxpayer. U.S. corporations owe more than $10.5 trillion to creditors in the form of loans or bonds. Household debt stands at $14.35 trillion.

But we end on a merry note, with the hopes of millions resting in small doses as one vaccine is being delivered to hospitals and nursing homes, and another one is nearing FDA approval. We will be back in a few weeks to take a look at the some of the market-moving trends carrying us into 2021. For now, all of us at HJ Sims simply wish you and yours a joyful holiday season with all the comforts of home and family, and only healthy and successful days in the new year.

by Gayl Mileszko

The Cascade Mountain range, named for the great cascades found near the Columbia River Gorge on the Oregon-Washington border, extends for more than 700 miles from Lassen Peak in northern California through the Fraser River in southern British Columbia. The highest peaks in the range include Mount Hood and Mount Ranier. These mountains are part of the Pacific Ocean’s Ring of Fire where nearly 90% of the world’s largest volcanic eruptions occur. There are said to be 452 volcanoes in the Ring, and they fall into three main kinds: cinder cones, shield volcanoes, and composite volcanoes. The latter, also known as stratovolcanoes, have steep profiles and periodic explosive eruptions with swift, avalanche-like, ground sweeping pyroclastic flows of gas and rock, steam and water. Of the three types, stratovolcanoes pose the greatest hazard to civilizations.

Forty years ago, the most deadly and economically destructive eruption in U.S. history occurred at Mount St. Helens in Washington, a stratovolcano located 96 miles south of Seattle. On May 18, 1980, an earthquake caused the entire north face to slide away, creating the largest landslide ever recorded on Earth. An eruption column rose 15 miles into the atmosphere and deposited ash in 11 states and 2 Canadian provinces. The debris avalanche was of such proportion that it would fill all 32 NFL stadiums in the country 31 times over. In total, Mount St. Helens released 24 megatons of thermal energy. Approximately 57 people were killed, hundreds of square miles were reduced to wasteland, and damages exceeded $2.7 billion. President Carter surveyed the damage and said that the area looked more desolate than a moonscape. Two years later, President Reagan designated the area as the Mount St. Helens National Volcanic Monument, to be used for research, education and recreation. Although seismic activity continued there for the next 28 years, hundreds of thousands still visit.

In 2020, the impacts from the coronavirus pandemic continue to cascade. In the state of Washington alone, cases total 184,404 and deaths total 2,941 as of December 7. More than 24% of staffed adult acute care hospital beds there were occupied by suspected and confirmed COVID-19 patients. The Institute of Health Metrics and Evaluation at the University of Washington projects that, without a vaccine rollout or the re-imposition of social distancing mandates, global cases will peak on January 20. As we approach the end of a deadly and destructive year, one in which several entire industries have been laid to waste and nearly every sector of the economy has been damaged, we cling to more optimistic projections for 2021.

Financial markets trade on expectations and we have seen irrepressible optimism since late March lows. We do not know the exact timing, but we can visualize the return of students to campus and fans to stadiums, the rescheduling of facelifts and knee surgeries, the booking of business flights and hotel stays, the pampering at spas, celebrations at restaurants, train trips to shop in the city, and booms in Boomer generation searches for dynamic life plan communities. The city streets may be desolate right now, but we are thinking long-term, venturing out of our cocoon havens, and willing to assume some investment risk because we know there will be a massive recovery, an economic and ecological regeneration such as the one that occurred at Mount St. Helens after the big blast. During the first week of trading in December, the Dow is up 1.5%, having broken through the 30,000 level, the S&P is up nearly 2% to 3,691 and the Nasdaq has gained 2.6% to 12,519. Oil is up 1% to $45.76 a barrel and gold prices have risen 5% to $1,865. So far this month, 10- and 30-year Treasury yields have climbed 10 basis points to 0.92% and 1.67%, respectively, while 10-year BAA rated corporate bond yields have dropped 6 basis points to 2.72%. Top-rated municipal bond yields have held steady at 0.72% for 10-year maturities and 1.42% for the 30-year primarily due to the lack of supply and demand for tax-exemption.

HJ Sims is in the market this week with a $30 million financing for The Bethel Methodist Home, better known as The Knolls, an entrance fee community with assisted living and skilled nursing in Valhalla, New York. The non-rated transaction is structured with a tax-exempt and taxable series and has a 35-year final maturity. Market demand for higher yielding maturities is exceptionally strong, supply has been light, and borrowers have been rare beneficiaries. Last week, three muni deals with Baa3 or BBB-minus rating came to market with 5% coupon bonds due in 35 years: the Glendale Industrial Development Authority brought a $90.7 million issue for Inspirata Pointe at Royal Oaks in Sun City, Arizona that priced to yield 3.58%; the Maryland Economic Development Corporation had an $80.8 million deal for student housing at Morgan State University yielding 4.09%; and the California Enterprise Development Authority sold $55.9 million of student housing revenue bonds for San Diego State University that yielded 3.02%. The Public Finance Authority of Wisconsin issued $37 million of Ba1 rated bonds for Charter Day School in Leland, North Carolina yielding 3.81% in 2055. And the Utah State Charter School Finance Authority sold $8.2 million of non-rated bonds for Paradigm High School structured with a 2051 maturity that priced at par to yield 5.125%.

There are technically three weeks remaining for issuers to access the markets, but one week from Friday trading and sales will wind down for the year. As you finalize your 2020 tax planning and plan your strategies for next year, we invite you to contact your HJ Sims partner today for guidance and recommendations tailored to your specific profile and needs. In the meantime, for all those celebrating the Festival of Lights, we wish you and your families the warmth of joy, the sparkle of health, and the glow of happiness and prosperity.

by Gayl Mileszko

Ecdysis, commonly called shedding, occurs when a lobster extrudes itself from its old shell. Unlike animals that are soft-bodied and have skin, a lobster’s shell, once hard, will not grow much more. But all forty species of lobster continue to grow throughout their lives, so when the shells become hard and inelastic they must be shed. This happens periodically. As a result, lobsters spend much of their time preparing for, or undergoing ecdysis and arranging safe burrows for the time it takes for the new shell to harden. The overall process of preparing for, performing, and recovering from ecdysis is known as molting. Lobsters molt five or six times in the first season, but the length of time between molts increases as the lobster ages such that an adult will molt only once or twice a year and females may go two years between molts when they are carrying eggs. Many factors including water temperature, food supply, and availability of shelter control when and where a lobster will molt. The actual shedding process only takes the lobster twenty or thirty minutes, depending on environmental conditions and the size of the animal, but this is when it is most vulnerable to predators.

The start to a new decade has made clear our vulnerabilities as well as our adaptability. The predator, a pandemic, has caused us to shed our plans, routines and ways of thinking. Many of us have experienced a sea change in how and where we live, work, travel, learn and communicate. The only constant is change and, in 2020, it has been sudden and massive. The impacts have certainly varied. Some individuals, institutions, communities and systems are well along in the recovery process while others have been shell shocked and suffered painful losses, or still remain in the burrow. There are less than thirty days left in the year and yet we cannot be sure how it will end and what comes next. There are still so many variables – including political, social, scientific and economic ones — at our local, state, national, regional, and global levels.

The financial markets have enjoyed favorable environmental conditions and year-long shelter from central banks. This in and of itself is shocking as is our expectation that it rallies will continue ad infinitum. In spite of global upheavals and tectonic shifts in demand, manufacturing, distribution, and technology, stock and bond markets have been in rally mode for all but about five weeks this year. Stock market volatility as measured by the VIX CBOE Index has risen from 13.78 to 20.57, but it is down 83% from the peak level of 82 in mid-March. So far in 2020, the Nasdaq is up 36%, the S&P 500 is more than 12% higher, the Russell 2000 is up 9%, and the Dow has gained nearly 4%. More than $140 billion has been raised in approximately 383 initial public offerings, exceeding the full-year record high set during the peak of the dot-com boom in 1999. The BAA corporate benchmark yield has dropped 92 basis points to 2.78%. Investment grade corporate issuance is well over $1.7 trillion and high yield corporate bond issuance exceeds $400 billion so far this year. After rising to record highs and dipping again, gold prices are still up 17%.

On the bond market side, the 2-year Treasury yield has fallen from 1.56% to 0.14%. The 10-year yield has dropped from 1.91% to 0.83%. The 30-year yield is down 82 basis points to 1.56%. The AAA municipal tax-exempt benchmark yield has fallen from 1.04% to 0.15%, the 10-year from 1.44% to 0.72%, and the 30-year from 2.09% to 1.41%. Municipal volume is on track to smash all records this year as borrowers have clawed or rolled their way to market to secure funds to undertake new, renovation and expansion projects, bolster liquidity, and refinance outstanding debt at low rates, often including low corporate and taxable rates.

Although the municipal calendar shrank to the smallest of the year at $18.8 billion in November as issuers elected to avoid possible volatility surrounding the elections, year-to-date issuance exceeded $440.8 billion as of November 30. Muni price performance has recently been the best in three decades. Among non-rated senior living deals priced in the past few weeks, Wesley Communities of Ohio brought a $69.5 million transaction with a final maturity in 2055 priced at 5.25% to yield 5.09%. St. Andrews’s at Francis Place in St. Louis had a $37 million deal structured with 2053 term bonds priced at 5.25% to yield 5.75%, Vivera Senior Living of Jeffersonville brought a $20.4 million deal that had 20-year term bonds priced at 5.25% to yield 5.20%, and Morningside Senior Living (TX) had a $15.3 million financing with 30-year bonds priced at par to yield 5.125%. In the non-rated education sector, Crossroads Christian Schools sold $20.5 million of bonds due in 2056 priced with a coupon of 5% to yield 4.75%, Columbia College in South Carolina had a $16 million issue structured with 2045 term bonds priced at par to yield 5.75%, and Blinn College had a student housing bond sale that included a 2057 maturity priced at par to yield 5.00%.

At HJ Sims, we welcome our investing clients to contact us for our thoughts on how to re-invest the $51 billion of muni bonds maturing or being called in December and January, how to prepare for year end, and how to position for 2021. We are always available to our banking clients and prospective borrowers looking for guidance on market rates and access. As we look to bring the best possible conclusion to a year that no one ever envisioned, we welcome your input, comments and questions.

by Gayl Mileszko

Our seasonal favorite, “Over the River and Through the Wood” was originally published in 1844 as a poem written by Lydia Maria Child and later set to music by a composer still unknown. Over the years, many of us have grown up singing this joyful song en route to celebrate Thanksgiving with family, sometimes changing the lyrics but never the melody:

Over the river, and through the wood, to Grandfather’s house we go;
the horse knows the way to carry the sleigh through the white and drifted snow.

Over the river, and through the wood, to Grandfather’s house away!
We would not stop for doll or top, for ’tis Thanksgiving Day.

Over the river, and through the wood— oh, how the wind does blow!
It stings the toes and bites the nose as over the ground we go.

Over the river, and through the wood— and straight through the barnyard gate,
We seem to go extremely slow, it is so hard to wait!

Over the river, and through the wood— When Grandmother sees us come,
She will say, “O, dear, the children are here, bring a pie for everyone.”

Over the river, and through the wood— now Grandmother’s cap I spy!
Hurrah for the fun! Is the pudding done? Hurrah for the pumpkin pie!

This year, AAA predicts that only 47.8 million Americans, about 15% of us, will travel for this Thanksgiving holiday, with 95% of us planning to go by car, 2.4 million flying, and 353,000 traveling by bus, train or cruise. This would be the greatest year-over-year drop since 2008 and it could be the biggest on record, all as a result of COVID-related concerns. There are quarantine policies, public transit fears, and government advisories or restrictions on activities, the size gatherings, business hours and configurations. Many argue that, after eight months of unprecedented pandemic-induced separations and deprivations, this year — more than any other — is the time for us to gather and give thanks for all we have endured. But there are also many sound justifications for pause, for distance, for establishing what may be new traditions for virtual celebrations. There are also plenty of great new excuses for avoiding angry dinner time political arguments, awkward moments with crazy Uncle Harry, and Aunt Edna’s mincemeat tarts.

The average age of a first-time grandparent is 50 and, at AARP’s last count, there were more than 70 million grandparents in the United States. For those who long to travel, families will think long and hard about the wisdom of descending on grandmother and grandfather’s house so as to significantly limit the risk of spreading a virus that poses such a fatal risk to those in their age group. Recent studies show that the infection fatality rate for COVID-19 increases from 0.4% at age 55 to as high as 15% at age 85. The CDC reports that, through the 12th of November, 92 percent of COVID-19 deaths nationwide have occurred among those ages 55 or older.

One in ten grandparents lives in the same household with their grandchildren, and 5 percent of those are primary caregivers, so for these families no travel through the woods would be necessary this Thanksgiving anyway. But for the six or seven percent who live in assisted living communities or skilled nursing facilities, it has not been possible for family to get through the barnyard gates to visit or share a pie for eight long months. It has been so hard to wait … and yet the wait goes on.

Financial markets will slow next week, fewer new deals with come to market as traders and buyers pause for the all-American holiday. The pace of issuance, of initial public offerings, of horse trading, has been frenetic this year. The investment community is exhausted by the recession induced by the pandemic, the market volatility, the uncertainty, the months of living with the devastating impacts on schoolchildren and small businesses, the toppling of industry titans and explosive shift in demand for technology, the massive central bank interventions and staggering levels of stimulus during a polarized election season that seems never ending. We have lived with fear and the fear of missing out, yearning for yield and vaccines, with new perspectives on the differences in how our states operate, with varying degrees of loathing and respect for our branches of government. We have forged many rivers and are taking the best paths we know, but are not yet out of the woods.

At HJ Sims, our veteran banking, underwriting, sales and trading professionals are working with our clients on year-end strategies, income needs, refinancing options, and planning for 2021. Our base assumption is that we will be in a low rate environment for several more years, so we are structuring financings for our borrowers at the lowest competitive rates while finding the highest yielding, income-producing instruments most suitable for our loyal investors. We will be working through the holidays as we have a number of new issues scheduled through year-end and into the new year, and our trading, advisory and sales teams are always active.

In response to preliminary election results, economic data, fizzled stimulus hopes, promising vaccine developments, and news reports of surging case counts, the equity, bond and commodity markets have all generally rallied this month. Historic correlations remain askew. Since the end of March when pandemic lockdowns began and market turmoil peaked, the Dow is up 36% and the S&P 500 40% while the Nasdaq and Russell 200 have soared by 55%. Ten-year Baa-rated corporate bonds yields have fallen 174 basis points to 2.86%. Oil prices are up more than 104% a barrel to $41.21. Gold prices have gained 18% an ounce to $1,886. Although 10- and 30-year Treasury yields are up, 2-year yields have dropped 26% to 0.17%. Top-rated municipal bond yields have plummeted across the curve: the 2-year is down 90 basis points to 0.16%, the 10-year is down 56 basis points to 0.77% and the 30-year is down 48 basis points to 1.51%. Non-rated bonds priced last week came with yields in the range of 5.50% in 2050.

Back in the fall of 1621 in Plymouth, Massachusetts, there was a bountiful harvest after a year of sickness and scarcity. Pilgrims celebrated a tradition called the Harvest Home. Massasoit, a leader of the Wampanoag People, along with 90 of his men joined the English for three days of entertainment and feasting. No one knew what the coming days, months or years would bring. Three hundred and ninety nine years later, we are still unsure of what the future has in store. But we know that having somewhere to go is home, having someone to love is family, and having both is a true blessing. To all our valued staff, loyal clients, industry colleagues, to all the grandparents among the thousands of residents living in communities that we have been privileged to finance, we at HJ Sims wish you a very happy Thanksgiving.

by Gayl Mileszko

Preston Edward Buckley, 103, of Perrytown, North Carolina drove himself to his local board of elections five miles away in Warrenton and, for the first time in his 82 years of voting, cast his general election ballot curbside. A native of Carroll County, Tennessee, Mr. Buckley is a World War II veteran who became one of the first African-Americans to serve on the New Jersey Highway Patrol. After retirement, he moved to North Carolina and became an investigator for a law firm. A proud citizen, born three years before the 19th Amendment gave women the right to vote, he served as a poll watcher and even conducted voting workshops well into his 90’s. Mr. Buckley along with the rest of his neighbors in the Tar Heel State are still waiting for the final tallies. More than one million absentee ballots were cast there and those postmarked on or before November 4th with the proper signatures will be accepted up until this Thursday, November 12th. Results are expected to be certified on Friday.

The Associated Press (“AP”) has been counting the vote for 170 years, tabulating results, and declaring unofficial winners on Election Night or soon thereafter. This year, the AP has again called most of the 7,000 races it followed, starting with the two state results first declared at 7 p.m. on Election Night, culminating with the presidential race on November 7 at 11:26 a.m. The pandemic altered the method of voting for millions of Americans and turnout was well above average. Our patience in an era which generally affords us instant gratification has been tested this time by the closeness of the vote in key areas, the markedly different procedures and deadlines adopted by individual states, the slowness of mail-in vote tallies, and polling that proved to be way off base. Several recounts will soon occur and more than the usual number of lawsuits are being filed to, among other things, halt the count, disqualify tranches of ballots, and compel closer observation of the counting process.

Wall-to-wall media coverage of all the twists and turns began well ahead of the first absentee votes which began arriving a month and a half before Election Day. Estimates vary, but a fair number of the 157.6 million registered voters have new questions about the integrity of the process. Debate on reforms at the local, state and federal level will no doubt ensue, shaped by this year’s post-mortems as well as promising new technologies. In the meantime, our republic awaits official election results in the form of individual state certifications in the coming days and weeks, the official votes of the Electoral College on December 14th, and the final count by Congress on January 6th.

Wall Street has already conducted its own tallies, digested results which appear to confirm a divided federal government, lessened regulatory and tax hike risks, GOP control of state houses and legislatures, and no earth-shattering referendum outcomes. Stocks had their biggest post-election rally in over a century. Treasuries also staged a massive rally, propelling municipal and corporate bonds. On the heels of the investor relief rally came the news that Pfizer and BioNTech reported that their Covid-19 vaccine is more than 90% effective. The Dow and S&P 500 indices jumped again, hitting record highs, as investors cheered the prospect of controlling the disease that has derailed our economy for most of the year and killed more than 239,000 of our citizens.

Since the start of the month, the CBOE Volatility Index, dubbed the Fear Index, has dropped 35% to 24.80. The Dow is up 11% to 29,420. The S&P 500 has gained 275 points or more than 8% to 3,545. The Nasdaq is up 642 points to 11,553. The Russell 2000 has gained 198 points or 13%. Oil is 16% higher at $41.36. Gold prices have increased $3 an ounce. As investors turn to risk assets in the twin relief rallies, pundits might expect bonds to have sunk. Treasuries have, in fact, weakened over these past 10 days. The 2-year yield is 3 basis points higher at 0.18%, the 10-year has added 8 basis points to sit at 0.95% and the 30-year yield has increased 9 basis points to 1.74%. However, the 10-year Baa corporate bond yield has dropped 12 basis points to 2.91%. The 2-year AAA benchmark municipal yield has fallen 1 basis point to 0.20, the 10-year yield dropped 7 basis points to 0.86% and the 30-year yield has fallen 10 basis points to 1.61%.,

Since Election Day 2016, the Dow has gained 61%, the S&P is up 66%, the Russell 2000 has increased by 45% and the Nasdaq by 123%. Oil prices are 8% lower and gold is 47% higher. Ten-year Treasury yields are 35% lower. The lowest investment grade corporate yields have dropped 41%. 10-year tax-exempt yields have been reduced by half from where they stood at 1.71%.

The past two weeks have seen blockbuster corporate issuance but a light municipal calendar. The 30-day visible supply of municipal bonds only totals $7.9 billion. Ahead of the elections, state, local and non-profit borrowers came to market at a fast and furious pace. Mid-October saw the second largest competitive sale week on record. The volume was easily absorbed by a market with unrelenting demand for tax-exempt bonds and newfound demand for taxable and corporate CUSIP supply bolstered in part by foreign demand which has doubled year-over-year. Overseas buyers are discovering new diversification within rating categories, a notable pickup in spread, additional value, less credit risk than with investment grade corporate bonds, and a lot more yield than in their own sovereign debt.

High yield municipal bonds and longer maturities have been outperforming shorter investment grade counterparts in the latest risk-on environment. This class has been stressed throughout the pandemic as investors feared the pandemic’s long-term impact on airlines, airports, mass transit, toll roads, smaller universities, rural hospitals, and nursing homes. But buyers tired of seeing months of negative real returns on short investment grade holdings and mutual funds, and recognizing the essentiality of these institutions, facilities and services in their own communities are buying individual bonds again. In the past two weeks, we have seen Edkey Charter Schools come to market with an $87 million non-rated deal structured with 35-year term bonds priced at 5.00% to yield 5.125%. Judson Park, Judson Manor, and South Franklin Circle life plan communities in Ohio, borrowed $83.8 million in a BBB-minus financing that featured a 2050 term bond priced at 5.00% to yield 4.19%. The Tahoe-Douglas Visitors Authority sold $112 million of non-rated revenue bonds including a 2051 maturity priced at 5.00% to yield 4.47%. And Missouri Slope Lutheran Care Center in Bismarck, North Dakota had a $78 million non-rated transaction with a final maturity in 2056 priced with a coupon of 6.625% to yield 6.85%.

Bond markets closed on Wednesday in observance of Veterans Day. We at HJ Sims thank Preston Buckley of Perrytown, North Carolina and all the veterans who have sacrificed much to defend our precious freedoms, namely: those of speech, religion, press, assembly, and the right to petition the government for a redress of grievances.

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.

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.

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.

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.

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.