By Gayl Mileszko
Market Commentary
The Daily Soaps
If it bleeds, it leads. That is what we say about the tendency of the media to headline graphic, scandalous, violent, or otherwise shocking stories to quickly grab public attention, increase circulation, and grow advertising revenue. William Randolph Hearst first coined the phrase in the 1890’s during his battle with Joseph Pulitzer for market share. Hearst found that it was news coverage of gruesome and tragic events that captured the most public interest. No surprise. Not much has changed over time, except that we have many more media channels, social media in particular. Today, we have our own yellow-highlighted era of sensationalism, exaggerations, fabrications and clickbait headlines to entertain us. They feature the daily drama involving the world’s most powerful and richest men, tariffs, anything having to do with the Jeffrey Epstein files, and all the various shortcomings in the One Big Beautiful Bill en route from the House to the Senate.
Complex Dynamics
Like every other country, every family, we have our problems. Debt is certainly among them. As with the TV soap opera themes that have captivated audiences for more than 75 years, we deal with unusual relationships, lots of suspense with improbable events including betrayals and rivalries, secrets, moral conflicts, lots of dialogue, enough intrigue and hope that we must tune in for tomorrow’s new twists and turns. Who knows where artificial intelligence, cryptocurrency, and the hunt for rare earth minerals take us? But we in the U.S. have a continuing story: the best economy in the world, the most liquid financial markets, the beacon of freedom and promoter of democratic values. Our 10-year Treasury rate is the benchmark for most every other rate on the planet. Yes, our President has a rather unique communicating and negotiating style, and his profusion of executive orders has resurrected some fascinating constitutional issues, testing our system of checks and balances — some for the first time in 249 years. And yes, a lot of our overseas relationships and economic data could be better. The uncertainty over fiscal, monetary, and foreign policy has caused many businesses and institutions, not to mention those of our sovereign allies, to put plans on hold while awaiting more clarity. Yet this is by no mean a bad year. Not at all like the one the Colorado Rockies, for example, are having. They are at the bottom of the National League with a record of 12-54, losing 26 of those games at home.
The 2Q25 Season
There are plenty of bad numbers that we as a nation are glad to have in the rear view mirror – most have come from the Depression, to the world war years, to 9/11, the Great Recession, and the Pandemic. This year has posted some great numbers in certain commodity markets: gold, platinum, silver and steel lead the pack with year-to-date prices up by 24% to 29%. Bitcoin has risen 16%. But 2025 has been just so-so for other U.S. financial markets. We look forward to a better second half. As of the first week in June, stock market indices are in positive territory: the S&P 500 is up 2.61%, the Nasdaq is 1.45% higher, and the Dow has risen 1.31%. In the bond market, U.S Treasury index returns are up 1.94%, high yield corporates have gained 3.00% and taxable municipal bonds are 1.06% higher. We find municipal bond yields highly attractive right now. The 2-year AAA muni general obligation benchmark yield stands at 2.70%, the 10- year at 3.34 % and the 30-year at 4.56%. The ratio of 2-year municipal bond-to-Treasury note yields at this writing is 67%, the 10-year at 75%, and the 30-year at 92%.
No Awards Yet
With a united front and forceful lobby on the part of state and local governments, champions of senior living and charter school growth, and other advocates for publicly financed infrastructure and public-private partnership projects, we have so far fought off serious threats to private activity bonds and tax-exemption in general. But tax and other budget provisions are still being worked out. In an effort to present a package to the President by July 4, it appears that the principals are working to have a House-Senate conference agreement worked out ahead of a vote on the Senate version. Most unusual. Anything can still happen, given some growing pressure to reduce the debt and deficit. We note the success that many small, boutique and regional municipal bond broker dealers celebrated this week after several years of arguing against a proposed one-minute trade reporting rule that failed to consider the needs of our retail and high yield buyers. And we encourage all readers to remain vigilant and continue to inform your elected officials of the critical importance of tax-exempt financing to the success of your local communities.
Days of Our Lives in the Markets
As the tax and budget legislation moves through the process on Capitol Hill, and while the appropriations committees hold first hearings on funding requests for fiscal year that begins on October 1, borrowers have been in a hurry to bring deals to market. Colleges and hospitals, in particular, have moved plans for market entry forward just in case any new limitations on tax-exemptions should surface. This is also the first year in which many borrowers, municipal and corporate, finally exhausted their COVID-era stimulus and need new funds to begin or complete key projects. These projects have also become more expensive, given recent years of inflated supply and labor costs. So far this year, companies borrowing in the corporate bond market has exceeded $949 billion, including $123 billion of high yield issuance.
Big Beautiful Bond Issues
HJ Sims came to market last week with two non-rated charter school financings issued through the Louisiana Public Finance Authority. We sold $153.7 million of non-rated bonds for Acadiana Renaissance Charter Academy structured with a final maturity in 2059 priced with a coupon of 6.00% to yield 6.20%. Our $97.8 million non-rated transaction for Lafayette Renaissance Charter Academy included a 35-year maturity that priced at par to yield 6.50%. The $21.8 billion calendar last week was the highest we have seen since December of 2017, ahead of the last major tax reform vote. So far this year we have seen $242 billion of municipal sales. We expect $17 billion this week and as much as $55 billion this month. Mutual bond fund flows have been positive for the last six weeks, and redemptions and maturities hitting investor accounts in the next 30 days are expected to total $47 billion.
Competition
There are plenty of sideshows to consider in the days and weeks ahead: how Congress “scores” the pending reconciliation bill, the success of this week’s 3-, 10- and 30-year Treasury auctions, all the sudden warnings about long-term debt implications from those who were quiet in recent years after so much stimulus. Market focus is also on funding and foreign student visa cuts at Harvard, and the outcome of some two hundred court battles being waged against Trump Administration initiatives. We see this week as the beginning of a long hot summer in the financial markets. So far, housing sales are lousy; 30-year mortgage rates are at 6.85% and delinquency rates on consumer debt have been on the rise for a year. Traders are following developments with Iran nuclear talks as well as here at home in Los Angeles and other major cities where protests over deportation operations may spread and impact local economies. Some warn that we are underestimating the longer-term implications of travel bans and deportations, while others believe we downplay major issues such as Chinese agroterrorism. Investors continue to monitor developments on tariff negotiations, awaiting particular details from the general frameworks with Chinese counterparts being circulated from London. The latest U.S. inflation numbers seem to quash worries over tariff impacts but consumers and businesses remain wary while cheering for the Federal Reserve to join the crew of other central banks cutting rates. Bank of America strategists report that they forecast no rate cuts this year but 100 basis points of reductions in 2026. Futures trading at this writing reflects market expectations for two more quarter point rate cuts this year.
Coming Attractions
The nation gathers to celebrate the U.S. Army’s 250th anniversary, and we at HJ Sims join in, grateful to all who have served our nation since the Second Continental Congress voted to establish the Continental Army in 1775. The Federal Reserve Bank, created 138 years later in 1913, will next meet on Tuesday and Wednesday to issue its latest economic and interest rate projections. Please contact your HJ Sims representatives for insight on the latest forecasts, events and indicators as the world turns. Reach out for more information on the new charter school financings that we have planned.