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.

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.

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.