by Gayl Mileszko

NO BEAR HUGS PERMITTED, NO BEARS IN SIGHT

The Māori are the indigenous eastern Polynesian people of mainland New Zealand who came to the islands by canoe in a planned migration in the early 14th century. They developed a unique culture and language which evolved again in the late 18th century with the arrival of European settlers with written words, muskets, western agricultural methods, missionaries, smallpox and measles. Tensions between the cultures inevitably led to hostilities over time, most notably involving the sale of ancestral land. The ensuing social upheaval as well as the epidemics took a terrible toll on the Māori population; it took a century before protests for social justice and political activism stirred a significant revival movement, and it was not until 1987 that Māori was made an official language. Today, this ethnic group comprises about 17% of the country’s population but less than 200,000 still speak one of the three main dialects.

The word māori means “normal”, “natural” or “ordinary” and is said to distinguish us ordinary mortal human beings from the deities and spirits. In the Māori creation story, it was the forest god Tane who breathed life into the first woman. The story is kept alive to this day in the traditional Māori greeting which involves pressing noses together and touching foreheads in a practice called hongi. With this very personal connection, the ha (breath of life) is exchanged in a symbolic show of unity. COVID-19 has, of course, put an end to this centuries-old practice. From Auckland to Paris, Wuhan to Moscow, Toronto to Buenos Aires, non-verbal greetings from hongi to handshakes, and hugs to double cheek-kisses, once so common in our daily interactions with others are taboo under social distancing public health guidelines. What is left to us is only the awkward elbow bump, the tapping of feet, a wistful wave or spiritless salute from a distance or a two-dimensional smile on a flat screen.

We have lost a lot this past year – lives, jobs, businesses, homes, cars, freedoms, a sense of control, the sense of human touch. Neuroscientists agree that human contact is vital to health, wellness and happiness. There is a highly complex system of nerves, sensors and receptors that link our skin and brain to the people in our environment, and those deprived of a loving touch can develop severe psychological, intellectual and physical health issues. Some studies show that the pleasantness of touch is actually enhanced with age. That makes it all the more sad that senior citizens are among the most touch-deprived throughout this pandemic as so many outside of senior living communities have been self-isolating for nearly eleven months now.

The inability to shake hands, hold hands, slap backs, half hug, bear hug, huddle, and read full facial expressions has also clearly taken a toll on our politicians, elder and young alike, in Washington. While already strained by partisan divides that have been widening for 25 years, COVID guidelines have upended the tried and true methods for building coalitions, gathering for markups, conferring in cloakrooms, collecting intelligence over cocktails, commanding respect in committee hearings, enacting important legislation. Longstanding rules governing language and conduct have been waived; few leaders maintain the gold standard of civil discourse. Instead of mandates for change, recent elections have only made the extremes more apparent and inflexibility the charge. The latest Monmouth University poll finds that one-third of Americans and fully 72% of Republicans still believe that President Biden is in only office due to voter fraud. Gallup finds that 82% of Americans disapprove of the way Congress is handling its job, just off the 45-year low of 86% in 2011. The percentage of Americans citing national division and lack of unity as our top problem is the highest in Gallup’s seven decades of asking this question, dating back to 1939.

There are no bear hugs being given on the floors of any of the stock, futures, commodities, or other exchanges these days. It is not because of our civic polarization but because there are no bears. Few if any of the usual correlations between U.S. markets apply, and stocks and bonds market remains in rally mode for the twelfth consecutive year since the Great Recession, despite the Pandemic. With only a few more trading days left in this first month, the Dow at 30,960 is up nearly 10% from where it stood one year ago. The S&P at 3,855 has gained nearly 20%, the Russell 2000 at 2,163 is up more than 34% and the Nasdaq at 13,635 has increased a staggering 49%. Oil prices are up over 2% to $52.77 and gold nearly 17% to $1,858. Bitcoin at $33,770 is worth 264% more. Call-option buying on indices as well as single stocks has exploded with volumes reportedly running 20% higher than last summer. Treasury yields, despite one record auction after another to fund unprecedented stimulus, are down across the board year-over-year: the 2-year has plummeted 120 basis points year over year to 0.11%; the 10-year fell 48 basis points to 1.02% and the 30-year at 1.79% is 20 basis points lower. Tax-exempt AAA municipals have also rallied: the 2-year at 0.13% is down 70 basis points, the 10-year at 0.77% has fallen 38 basis points and the 30-year at 1.44% has decreased 36 basis points.

The Federal Open Market Committee met this week and markets once again expected reassuring words of long-term accommodation and growth on the horizon. Stock and bond investors continue to assume that COVID case counts and deaths decline with the increase in vaccinations, and we all watch and cheer the falling numbers along with the rest of the country. Economic data remains mixed, with housing strong, confidence holding, manufacturing up and some services down. With the change of party control in Washington, policies are already taking some new directions. Tax and spending measures and regulations always require more time than hoped for — or feared — but executive orders this first week will soon impact health care, energy, student loans, immigration, travel, collective bargaining, privately run prisons, certain international agreements and government procurement.

In the trade press and among the popular pundits, we are aware of some irrational exuberance and extreme fear, uncertainty and paralysis. There are indeed warning signs of bubbles in some sectors. We all know that some in the industry encourage senseless speculation based on stimulus continuing ad infinitum, many others seriously worry about inflation, and we are all frustrated by the lack of yield and difficulties in trying to hedge portfolios with all correlations so askew. For now, as one trader put it, “high yield is the paper du jour”. In bonds, high yield munis and corporate convertibles are the stars so far. We encourage our readers as always to connect and remain in close contact with your HJ Sim representatives for perspective, guidance and recommendations for your portfolio based upon your guidelines, needs, and risk tolerances.

by Gayl Mileszko

In Act 3, Scene 1 of the Shakespeare play, Prince Hamlet asked, “To be or not to be?” bemoaning the pain and unfairness of life amid a sea of troubles, but acknowledging that the alternative might be worse. Nine months into our current global calamity, enduring the “whips and scorns” of this pandemic, so many of us have weighed our chances of contracting and surviving or spreading the coronavirus against chosen behaviors. In the United Kingdom as well as the United States, some of our most recent choices involve taking one or more of the emergency use authorized vaccines. Here, the Pfizer-BioNTech and Moderna COVID-19 rollout has been underway for about a month now and 31.1 million doses have been distributed. States are individually responsible for implementing programs but priority has been given across the board to health care workers and those in long term care facilities. CVS and Walgreens are critical to the plan and they aim to make at least initial visits to nearly all nursing homes by February. Some states are already making inoculations available to those over age 65 lest we “lose the name of Action” or momentum in our struggle. 

The American Health Care Association reports that about 45% of long term care workers have already been vaccinated. But surveys indicate that 29% of those who work in health care delivery settings said they would probably not or definitely not take the vaccine even if it were free and deemed safe by scientists. Hesitancy mirrors that of the general public where as many as 40% plan to wait and see or pass for now due to worries about the lack of long-term studies on side effects compounded by the need to have two doses, concerns over the type of antigen itself or misinformation about genetic impacts that messenger RNA vaccines could have, general mistrust of government and perceived profits being made by the pharmaceutical companies, and concerns about duration and effectiveness against the new and more contagious variants of the virus that have begun spreading. Refusal rates this high can certainly jeopardize our ability to achieve what many believe is the critical need: population immunity.

Unfortunately, no one is expecting the pandemic to subside by this spring. There is talk and hope of having most American citizens vaccinated by the third quarter of this year. The new administration proposes additional stimulus to speed up the testing and vaccination process. Health care providers are offering an array of incentives to employees and requirements for prospects. The U.S. Equal Employment Opportunity Commission in December released guidance stating that employers can require proof of COVID-19 vaccination from employees — with some exceptions. Dialogue in the coming months will include various “immunity passport” initiatives affecting all of us that may be highly controversial but could prove to be a first critical step in restoring a return to air travel, hotel stays, mass transit, restaurant dining, tourism, conventions, sporting events, commercial real estate, and the entire continuum of senior care from independent living to assisted living to memory care and skilled nursing.

Some parts of the economy are being permanently altered by SARS-CoV-2 as is trust in certain institutions, notably including the media. At the federal, state, community, and business/institution levels, it is extremely challenging to communicate effectively with stakeholders who have so many diverse political, legal, medical, religious, investment, and historical views. Skepticism is rampant. One recent survey by communications firm Edelman found that we not only have a pandemic but an “infodemic,” an era of information bankruptcy and poor “information hygiene”. Communications from “my employer” have now become the most trusted source of information at 61%. CEO’s must take this message to heart and redouble efforts to be transparent and to safeguard information and product quality as well as to protect and upskill workers and inform and engage their communities and investors of these efforts.

Quarterly corporate earnings reports for the most recent period have just began and analysts are scouring the last three months of performance while peppering leadership with questions on plans and forecasts for the start of 2021. Traders and investors are also carefully listening to the statements and testimony from key incoming members of the Biden Administration on the many new policy proposals and their potential market impacts. Much has not yet been “baked in” to evaluations and certain markets as the shift in Congressional leadership is still being assessed. 

Most U.S. markets nevertheless remain on fire going on three weeks into the new year, buoyed by our central bank’s policy of unprecedented accommodation for the foreseeable future. This week’s investment grade corporate new issuance is again expected to exceed $25 billion. So far this year $22 billion of high yield corporate bonds have priced and this could be the busiest months on record for this sector. Initial public offerings proceed apace. Record inflows into high yield municipal bond funds are a perfect reflection of the ongoing demand from individuals for some tax-exempt “oomph” in portfolios that may otherwise be producing nothing more than negative real returns. 

Income investors are advised to contact their HJ Sims representatives for recommendations of individual bonds tailored to their risk and capital needs profiles. The general muni market, as reflected in the ICE BoAML Index is up 0.04% this year while the HY muni index has gained 1.03%. High yield corporates are up 0.37%, and convertible bonds are returning a whopping 4.84%, primarily driven by gains in TESLA. U.S Treasuries, by comparison are down 1.15%,

We live amid a raging pandemic but the season has changed and we know that many other changes lie ahead. In many ways, we have not been down this path before. A new president is being inaugurated while an article of impeachment is pending against the former president. We have an unusually close relationship between the incumbent Chair of the Federal Reserve and his predecessor, the incoming Treasury Secretary. The central bank has the greatest single impact on markets and may use yield curve control, more liquidity support, potentially set a negative interest rate policy or exploring the use of digital currency. Major policy reversals are possible, impacting everything from taxes to health care, to energy and the environment, to immigration and corporate regulation. We may face inflation, a weakening dollar, and more horse trading than usual, given the thin margins in both the House and the Senate. We at HJ Sims wish godspeed to all assuming new public office and working to speed a recovery in each and every sector while supporting our essential services and entrepreneurs and the promising economic future ahead. As Shakespeare wrote in another famous play: “Come, love and health to all. [We] drink to the general joy of the whole table.”

by Gayl Mileszko

There is only a week to go until the Inauguration of our 46th President. The weather forecast for January 20 is for a partly cloudy day with temperatures in the mid-40s. But other conditions are not so favorable for this time of year and for these traditional American quadrennial ceremonies in which we all ask for God to bless America. The pandemic has already nixed most of the festivities that have accompanied the swearing-in since 1805, including celebratory inaugural balls and parades. But now in the wake of the storming of the U.S. Capitol on January 6, law enforcement is on the highest possible alert. The FBI is warning about armed protests at all 50 state capitals in the days leading up to the recitation of the oath of office by the Chief Justice. Fifteen thousand National Guard troops are being deployed to the historic grounds that lay between Independence and Constitution Avenues, the People’s House.

Two hundred thirty miles away on Wall Street, markets have barely flinched over these events. Many months ago, markets baked in assumptions of a peaceful transition of power. Investors and traders, as good at counting votes as any party whip, were unfazed when the House of Representatives approved articles of impeachment against the 45th President on December 18, 2019. They are again unfazed by this Wednesday’s vote in the south end of the Capitol. Dozens of major U.S. companies have responded with pronouncements that they are suspending political donations to some or all Members in the upper and lower chambers. Insiders understand that these bans are largely toothless as no one is fundraising at this part in the cycle with more than 660 days to go to the next election. Time and time again, we find that a lot not only can but does change in two years.

Since the start of the year, not a lot has changed in the financial markets. Prices on most assets are still extremely elevated, and rallies continue across most sectors on the expectation that additional fiscal stimulus will speed up our economic recovery. Although bonds have slightly weakened since the Georgia elections turned Washington “light blue”, as pundits label the razor thin Democrat majority in D.C., yields remain in historically low ranges. With expectations for even heavier federal spending. additional borrowing, and higher taxes, intermediate and long U.S. Treasury yields have jumped by about 24 basis points. This moved the 10-year past a 1% touchstone, but bear in mind that this yield exceeded 3.80% ten years ago. The 10-year yield is at 1.14% and the 30-year at 1.88%. The 2-year is relatively unchanged at 0.14% so far in 2021. It goes without saying that all these yields are producing negative real returns for investors.

The prices of all bonds are linked in some manner to Treasuries. So as government prices have dipped, BAA Corporate 10-year benchmark yields have risen by about 17 basis points to 2.82%. These rates nevertheless remain at historic lows, so corporate borrowers are still lining up for market entry. And both investment grade and high yield corporate bond issues cannot come fast enough to satisfy domestic and foreign demand. High yield sales total $13.2 billion so far this month with orders exceeding offers by more than three times, while investment grade issuance is already at $55.6 billion with recent trades more than 2.4 times covered. Corporates have clearly been buoyed by stock prices. At this writing, the Dow, S&P 500, and Nasdaq indices are each up about 1.2% this year while the Russell 200 is up nearly 6%. Oil is up more than 7%, but gold prices have fallen more than 2% and silver prices are off by nearly 5%. Among digital currencies, Bitcoin has been extremely volatile but is up nearly 15% in 2021.

Municipal bond yields have also inched higher since the start of the year, but Bloomberg is reporting that valuations are currently at record highs. The ratio of top-rated tax-exempt yields to U.S. Treasuries at 67% is the lowest since 2001, a huge drop from where it stood ten months ago at 215%. The 2-year AAA rated general obligation bond MMD benchmark at 0.15% is largely unchanged from last month. The 10-year and 30-year benchmarks have added 7 basis points and stand at 0.78% and 1.46%, respectively. Imagine that: top rated borrowers are still getting rates of under 1.50% for maturities in 2050! These are fantasy conditions still prevailing for most non-profit borrowers. For lower-rated and non-rated sectors, there are few deals so far this year to help us gauge the market. The Illinois Finance Authority brought a $26.6 million non-rated deal for the McKinley Foundation with a single 35-year maturity priced at par to yield 5.125%. The Wisconsin Public Finance Authority sold $6 million of non-rated bonds for St. Francis College in Brooklyn at par to yield 5.50% in 2024.

Investors cannot source enough tax-exempt product as many state, local and non-profit borrowers are taking advantage of low rates prevailing in the taxable and corporate bond markets to refinance higher coupon bonds. The 115th Congress removed the ability of tax-exempt borrowers to refund most long-term debt at tax-exempt rates, but many in the muni market hope that the 116th Congress will appreciate the urgent pleas from non-profits who are lobbying to restore the authorization and allow them to refinance outstanding debt at these extremely low rates. Record levels of taxable issuance would likely decline if, as some predict, tax reform legislation is enacted later this year or next with a provision restoring the exemption. This would significantly increase the supply of traditional munis for those looking to offset potentially higher individual tax rates.

We at HJ Sims are looking forward to this new year and cheer those states with the safest, most rapid and successful vaccine rollouts for health care workers, long term care residents and those greatest at risk of contracting the coronavirus. Along with our investors, we simultaneously root for those entrepreneurs and manufacturers of cost-effective air and surface cleaning and filtration technologies. While we share the concerns of millions over the civil unrest, the key but often controversial role of social media, the prospect of inflation, the status of mortgage, rent, student loan and other delinquencies, our growing federal and state debts and deficits, and the unprecedented year-long financial stress on most every non-profit and for-profit enterprise, we pause to count our many blessings and pledge to make our voices heard even louder this year.

For more than 85 years, we have worked with colleagues in our industry to improve market access for our borrowers, market intelligence for our investors, and public understanding of the key role that the municipal market has in facilitating essential purpose project financings. We are proud of our role in helping to originate the quintessential social good bonds and encourage our readers to join us in working collaboratively to provide and protect the safest living and learning options for our seniors, our disabled, and our young going forward. Please contact your HJ Sims representative to share your thoughts on how we can collectively enhance our advocacy on behalf of our country’s greatest needs in 2021.

by Gayl Mileszko

Speed is of the essence when it comes to delivering vaccines, election outcomes and aid to unemployed workers and locked down businesses. There are ways to measure baseball’s fastballs, touchdown sprints, and high-frequency trading executions. But some gauges can be a bit tricky. The speed of the Earth’s rotation, for example, varies constantly due to the motion of its molten core, oceans and atmosphere, as well as the impact of celestial bodies like our moon. Tides and the change in distance between the Earth and the moon all make for daily variations in the speed the planet rotates on its axis; even heavy mountaintop snow that melts in summertime can cause a shift. Given all the unprecedented events of 2020 around the world, it should come as no surprise that our Earth has literally been spinning unusually quickly of late. In fact, the shortest day on record was July 19, when the planet completed its rotation in 1.4602 milliseconds less than usual. Records were broken 28 times last year and the Earth in 2021 looks to be moving at an average daily pace that is 0.5 milliseconds faster than the standard 24 hours.

In recent decades, the Earth’s average rotational speed had been consistently decreasing. Scientists at the Paris-based International Earth Rotation Service who monitor the planet’s rotation inform countries six months in advance when “leap seconds” need to be added to align with solar time.  And, since the 1970s, official timekeepers have made 27 adjustments to keep atomic clocks in sync with the slowing planet. Most recently this occurred on New Year’s Eve in 2016. Now, for the first time on record, a negative leap second may be needed. The World Radiocommunication Conference members will make the decision when they next meet in 2023.

A more common standard measure of time, the Gregorian calendar, has been in use since 1582 and has just flipped into 2021. But for some, the new year began on December 14 when the first health care workers and nursing home residents were administered the Pfizer-BioNTech COVID-19 vaccine. Four days later, the U.S. Food and Drug Administration authorized a second vaccine from Moderna for emergency use. The two mRNA vaccines have shown remarkable effectiveness of about 95% in preventing COVID-19 disease in adults when given in two doses at 21 days and 28 day intervals, respectively. At this writing, 4.56 million Americans have received injections. All of us on Main Street and Wall Street are closely monitoring the rollout of this historic mass vaccination program, fervently hoping that it puts an end to the illness and loss suffered here and around the world.

Although there is federal guidance and $8 billion of federal funds, states are responsible for running the COVID-19 vaccination campaigns and prioritizing residents. There have been issues with public information as well as with storage, handling and administration of the doses. There is also an issue of public confidence. Not everyone is anxious to get the vaccine. Many have adopted a wait-and-see approach. The sheer number of healthcare workers and long term care residents at the head of the line means that there will be many months before others become eligible. Some have objections on religious grounds. More than 20.8 million Americans have already had the coronavirus; those who have recovered may believe that they have some level of immunity. Some cite concern over the speed with which the vaccines were developed and are worried about potential side effects. Those who look in the rearview mirror can find mis-steps on the part of the federal, state and local officials and may distrust the ability of elected and unelected government workers to handle anything having to do with the pandemic. Some find the matter political, others are skeptical of the big pharmaceutical companies who are benefiting financially from the rush to market. For those with cognitive issues, consent procedures can prove vexing.

As the majority await evidence of the effectiveness and safety of the vaccines, entrepreneurs are hard at work on other approaches. Some nursing homes, hospitals, restaurants and cruise ships are installing air purifying systems using needlepoint bipolar ionization technology to disrupt surface proteins of viruses and bacteria, and de-activate harmful pathogens. Hotels, schools and offices are installing ultraviolet light emitting diodes in heating and cooling systems to disinfect surfaces, ventilation and water systems. These technologies, or others yet to come, may also help to generate public confidence and resurrect businesses and institutions severely damaged by the pandemic and related lockdown policies.

Long-term care facilities have experienced significant drops in occupancy as a result of the deadly toll that the coronavirus has taken on the frail elderly population.  Some 40% of all reported COVID-19 deaths are said to have occurred in nursing homes. Rebuilding public confidence in the safety of these care communities is critical to the industry and will, in many cases, require considerable time and plenty of documentation and testimonials. Providers are exploring the expanded use of infection preventionists, recommending changes to Medicaid reimbursement rates to boost the salaries of their health and personal care workers, and working to develop improved regulatory reporting procedures.

While nursing homes, assisted living, and memory care facilities may take longer to return to pre-coronavirus levels, other battered sectors of the economy are primed to reverse if not soar once herd immunity appears imminent, federal and state efforts meet with widespread support, and vaccines and technologies are proven successful.  When does that happen? There is a colloquial expression attributed to Supreme Court Justice Potter Stewart: “I know it when I see it” that described his threshold test for obscenity. This is the type of test we will apply to determine in our own non- epidemiological ways when the end to this hideous pandemic is near. It will involve a combination of federal and state pronouncements, toned down and redirected media coverage, personal anecdotal experience, and the emergence of green shoots in our respective neighborhoods. 

Industries most impacted by the pandemic stand to gain the most in a world about to be restored to something akin to the 2019 version of “normal”. In the interim, and for the foreseeable future, rallies are unlikely to abate in markets for industries proven essential to day-to-day, stay-at-home life in the past year:  grocery stores, pharmacies, home improvement, on-line retail sites with rapid home delivery service contracts, information technology, household durables, fast food restaurants, agriculture, farm equipment, personal and health care supplies, key ports serving cargo ships, vacation rentals, recreational vehicles, golf-related products, testing services, cybersecurity, defense and other key domestic manufacturing, utilities, water and sewer, solid waste, affordable housing, technical schools, alcohol and tobacco.

Investors with cash and foresight will look to position portfolios for a post-COVID-19 economy. We will look to capitalize on the slow but sure rebound in oil and gas exploration and storage, steel, energy equipment and services, larger hospital systems, health care technology, banks, life and health insurance, property and casualty insurance, and toll roads with steady commercial traffic. In addition, steady reversals over time should occur in homebuilding, automobiles, aerospace, public colleges and universities. Among the sectors likely to take the longest to improve as there have been major and perhaps irreversible shifts in remote work and recreational choices. Our lives have changed in major ways since March and therefore partial rebounds will likely lag for airlines, hotels and resorts, rental cars, textiles and apparel, beauty products, mass transit, parking, casinos, gyms, cinemas and theaters, convention and sports venues, finer dining restaurants, jails, small private colleges, student housing, and commercial real estate.

Scrutinizing the relative differences in fundamentals including governance, geography, balance sheets, and COVID-19 case and death statistics, will take time but will pay off for well-advised investors. Regular and transparent reporting by for-profit and non-profit entities is required. Few of the old precedents apply; last year brought dozens and dozens of new pre-packaged bankruptcy cases with unexpected outcomes for senior bondholders having less than majority votes.  Changing consumer preferences and potential new regulations are bound to adversely impact holdings, including certain media. Population shifts are underway. Some entities have significantly diluted equity and incurred strangling debt loads. Governments at every level will need to re-prioritize budgets given the costs of debt service and urgent social and infrastructure needs. Underfunded pensions and other post-employment benefits may threaten future general obligation bond debt service as well as interest and principal on state and local revenue bonds with weak security protections.

For bondholders, 2020 was a year in which fixed income was largely redefined as lacking income.  Top-rated 30-year yields dipped well below 1.40% for tax-exempts and 3% for corporates. Even below investment grade and non-rated municipal and corporate securities sold at premium prices producing yields well below 5%.  The chart below depicts 12 months of declining yields and illustrates the decade long decline in benchmark bond yields. It also reflects the significant volatility and gains in the stock and commodity markets, and the growing acceptance and risky participation in digital cryptocurrency markets.

by Gayl Mileszko

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

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

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

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

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

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

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

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

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

by Gayl Mileszko

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

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

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

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

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

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

by Gayl Mileszko

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

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

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

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

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

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

by Gayl Mileszko

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

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

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

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

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

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

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

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

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

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

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

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

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

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

by Gayl Mileszko

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

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

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

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

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

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

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

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

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

by Gayl Mileszko

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

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

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

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

by Gayl Mileszko

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

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

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

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

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

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

by Gayl Mileszko

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

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

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

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

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

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