HJ Sims Market Commentary: From Evacuations to Vaccinations to Denominations

by Gayl Mileszko


The leaders of the world’s seven major industrialized democracies met virtually on Tuesday in tense crisis talks, just two months after a sunshine-y gathering of these same allies in the seaside resort of Carbis Bay, England.  Back in June, the British Prime Minister, the Canadian Prime Minister, the Italian Prime Minister, the Japanese Prime Minister, the German Chancellor, the French President, and the U.S. President came together to address 70 common concerns, number 57 of which was Afghanistan. The central Asian nation, now back under the control of the Taliban after 20 years, has since risen to number one. The mishandling of the U.S. withdrawal has impacted tens of thousands of foreign nationals, including our own citizens as well as our Afghan allies, left billions of dollars of military hardware behind, and shaken some faith in our global leadership position.  Evacuation missions proceed in haste, literally under the gun of the Taliban, demanding that all U.S. forces leave in the next six days.


Americans at home, at work, and on vacation are closely following developments more than seven thousand miles and eight hours away in some measure of disbelief and dismay. A new layer of anxiety has been added to all the other layers brought about by natural and man-made causes, seventeen months into the COVID pandemic, twenty years after 9/11.  So far, Wall Street appears to be unaffected and unfazed by the chaos in Kabul, but that could change. Traders are monitoring the extent of changing perceptions of the U.S. and how that might impact governance, our economy, our dollar, and our stock and bond markets. There are new logistical questions involving global money transfers and sanctions, worries over new ISIS threats and an Al-Qaeda revival, and plenty of concern about who moves in to exploit the rare earth metals and drug trade in a war-ravaged country bordered by Pakistan, Iran, Turkmenistan, Uzbekistan, Tajikistan and China.


Market rallies continue, propelled by the Food and Drug Administration’s approval of the Pfizer-BioNTech COVID vaccine on Monday, the assumption of continued central bank bond-buying and rate suppression, an encouraging series of stellar corporate earnings reports, and economic data reflecting an onward and upward recovery.  Public, private and nonprofit entities are struggling to formulate policies with respect to vaccines and/or masks for workers, patrons, and students while the medical community works to address re-infections, variants, and the short- and long-term side effects of vaccines, and scientists explore a host of possible new applications for messenger RNA technology. At this writing, the CBOE Volatility (“Fear”) Index has fallen four percent in August to 17.48, well below the pandemic average of 26.54. The Russell 2000 at 2,219 is slightly down but the Dow is up more than 1% to 35,396, the S&P 500 is 2% higher at 4,484, and the Nasdaq has risen more than 2% to cross 15,000, a new record high. Oil prices at $67.44 a barrel are down 9%, gold is off half a percent to $1,805, while silver at $23,86 has lost more than 6%, and Bitcoin at 48,014 has gained more than 16%.


The bond markets are in something of a late summer seasonal daze. Buyers are still hungry for Treasuries as havens, for the yield in corporate bonds and asset-backed bonds, and for the tax-exemption in municipals.  Taxable bond funds took in nearly $6 billion of new money last week, and municipal bond funds had $1.8 billion of inflows to mark a 24th straight week of growth.  Given the demand, prices remain sky-high and there is little appreciable difference between the highest rated and lowest rated credits. Two of the largest high yield muni funds have announced that they are closed to new investors.  Many investors, worried about inflationary conditions that could persist for years, are doing the math and quickly nixing offers for debt products that already produce negative real returns today.  The 2-year Treasury yield stands at 0.23%, or five basis points higher than where it began the month. The 10-year yield at 1.28% is up six basis points, while the 30-year is nearly flat at 1.90%.  The 10-year Baa corporate benchmark yield at 2.93% is six basis points higher. The AAA municipal bond benchmarks are higher across the board: the 2-year yield at 0.08% is up two basis points, the 10-year at 0.88% is six basis points higher, and the 30-year at 1.50% has risen 11 basis points.  Returns are negative across debt assets, with the exception of taxable munis at +0.41% on the month and +3.09% year-to-date. High yield munis, which are off 11 basis points in August, still have one of the best 2021 track records for bonds at +6.02%.


The municipal bond calendar exceeded $13 billion last week and high yield offerings were led by the Puerto Rico Aqueduct and Sewer Authority, which came with a $1.65 billion non-rated refunding that included Series 2022 bonds for delivery next June 15 with a maximum yield of 3.18%. Bonds came in $250,000 denominations and were offered to 35 qualified institutional buyers. In addition, the Hospital Facilities Authority of Multnomah County, Oregon sold $154.6 million of BB+ rated revenue and refunding bonds for the Terwilliger Plaza-Parkview Project that included 2056 term bonds issued in $5,000 denominations with a 4.00% coupon priced to yield 2.60%.  In the senior living sector, HJ Sims served as a co-manager on the $103.6 million BBB rated financing for Lifespace Communities; the bonds were structured with a 2053 maturity that priced at 4.00% to yield 2.52% and were offered in $5,000 denominations.


We are in the last full trading week of August. The highlight this time of year is typically the Jackson Hole meeting hosted by the Kansas City Federal Reserve Bank. The theme of this year’s three-day summit, which begins Thursday, is “Macroeconomic Policy in an Uneven Economy”, but the event lost some fizz when it morphed from a live event back to virtual, one once again.  No big news is expected in Wyoming but there is some expected from Capitol Hill, where the House was called back into session to vote on the $3.5 trillion budget resolution and presented a timetable for consideration of the infrastructure bill on or before September 27. Economic updates due out during the week include reports on existing home sales, new home sales, durable goods and GDP. On the corporate front, earnings are being reported for Best Buy, Dick’s Sporting Goods, Nordstrom, Dell, Dollar General, Dollar Tree, Gap, Peloton, Toll Brothers and HP.

The municipal bond calendar is estimated at $8 billion. In the high yield sector, a Texas nonprofit plans a $553 million sale of nonrated bonds to finance the purchase of 26 nursing homes in Texas and Oklahoma. The Military Installation Development Authority in Utah has a $260 million non-rated tax allocation and hotel revenue deal. Houston Airport has a $277 mil B-minus rated United Airlines terminal improvement project, the Public Finance Authority has a $153 million non-rated deal for Sky Harbour Capital aviation facility projects in five states, and the Western Regional Off-Track Betting Corporation of New York has a $26 million non-rated refunding. There are two social bond issues, two green bond deals, and four forward delivery financings on the slate. The 30-day visible supply of munis totals $9.6 billion; redemptions and maturities are expected to total $24.7 billion.

If you have cash that you would like to put to work in the municipal or corporate bond markets today, please contact your HJ Sims representative. We scour the daily offerings to find the best credits with the highest yields for our clients and welcome your inquiries.

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