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.