HJ Sims Market Commentary: All Tolled, A Wonderful Life

by Gayl Mileszko

In Year Two of this pandemic, while battling the Delta and Omicron variants, supply and labor shortages, multi decade-high inflation, and uncertainties on so many fronts, a number of organizations have nevertheless managed to celebrate significant milestones. This year marks the 75th anniversary of the National Basketball Association, the Cleveland Browns, the San Francisco 49ers, the United Nation Children’s Fund, the Bureau of Land Management, Ferrari, Fender guitars, the Fulbright program, Navarro College, Black Hawk College, Ursuline Academy in Boston, The University of North Carolina at Charlotte, and the Nashville Symphony, among others. Congratulations to one and all for enduring, thriving, and inspiring millions around the world through service, education and entertainment, in both good and trying times.

On December 20, it will also be 75 years since Oscar-winning director Frank Capra released It’s a Wonderful Life, the now timeless classic tale of George Bailey who, with the help of an Angel Second Class named Clarence, learns what his hometown and the world would be like had he never been born and how truly rich his life is. The movie will be replayed tens of millions of times over this holiday season, reminding us to acknowledge the countless acts of selflessness by those in our own communities, and to appreciate the true value of the gifts we have in our family and friends.

Washington Wraps Up

The season of celebration is upon us but not all pause just yet. In Washington, Members of Congress are finally working to address the debt limit. At this writing, it looks like a $2.5 trillion measure that should carry the nation through the mid-term elections.   They also have a defense bill to finish and some agreement to perhaps reach on a calendar for consideration of a reconciliation bill.  The Federal Open Market Committee meets to discuss how to combat inflation with an accelerated wind down of bond purchases and well-timed future rate increases. The Departments of Labor and Commerce are publishing consumer, producer, and import/export price data along with retail sales, jobless claims and housing data that are tracked closely by the financial markets. Along with the Fed announcement on Wednesday, these are the last major economic reports of the year and they dominate this last active trading week of the year on Wall Street. Investors are reviewing gains, losses and possible last-minute tax swaps while companies and nonprofits are scrambling to get deals done in the next few days before buyers leave on holiday.

Municipal Bond Sales Last Week

Ahead of the rush, HJ Sims brought a $134.2 million financing for John Knox Village last week that included BBB rated bonds issued through the City of Pompano Beach, Florida. We structured the transaction with four term bonds, including a 2056 maturity that priced with a 4.0% coupon to yield 2.75% and entrance fee principal redemption bonds anticipated for redemption in October of 2024 and January 2026 priced to yield 1.45% and 2.05%.  Among other senior living deals, the Missouri Health and Educational Facilities Authority issued $42.9 million of BBB rated revenue refunding bonds for Lutheran Senior Services that came with a 2042 final maturity pried at 4.00% to yield 2.25%. In the high yield space, Gallatin County, Montana had a $65 million industrial revenue bond issue for the Bozeman Fiber project that had a 30-year final maturity priced at 4.00% to yield 3.73%. There  were also four charter schools that had 35-year term bonds: the $124.5 million BB+ Jubilee Academic Center in Texas deal priced at 4.00% to yield 2.87%;  the $75.8 million BB+ rated Legacy Traditional Schools financing in Arizona priced with a coupon of 4%  to yield 2.82%; Gray Collegiate Academy in South Carolina had a non-rated $14.6 million deal that priced at par to yield 4.75%; and BB rated Penn Hills Charter  School of Entrepreneurship had a $12.2 million transaction that came with a 4.00% coupon priced to yield 3.25%. 

Year-to-Date Returns

At this writing, stocks are in the midst of a minor selloff in response to the latest inflation data but the year has been a tremendous one for equities as well as for most commodities. Through December 10, the S&P 500 is up more than 27%, the Dow is up over 19%, and the Nasdaq is more than 22% higher. Among base metals, aluminum is up 32%, copper 22%, zinc 21% and nickel 19%. Although iron ore and gold are down year-to-date, steel is 60% higher, natural gas is up 55% and crude oil 48%.

Fixed income prices have been extremely elevated but new issue coupons have generally not kept pace with inflation. Using the Bank of America Merrill Lynch indices as benchmarks, the best returns of the year have come in the high yield municipal sector at +6.33%.  Leveraged loans are up 5.14%, high yield corporates are 4.43% higher, convertibles have gained 3.47%, taxable municipals are +1.86%, investment grade municipals are up 1.69%, and preferreds are 0.84% higher. Most other bonds have had negative returns. Investment grade corporate bonds are down 1.13%, mortgages have lost 1.31%, and Treasuries have lost 2.41%. Ten-year real Treasury returns, adjusted for inflation, are at the lowest since the early 1980s.

Current Markets

The Dow Industrial index is currently at 35,544, the S&P 500 stands at 4,634, the Nasdaq at 15,237 and the Russell is at 2,159. Volatility as measured by the VIX Index is at 21.8, right around where it began 2021. Oil prices are at $70.34 a barrel. Gold is priced at $1,772 an ounce, silver at $21.90. Bitcoin is trading at $46,631. The 2-year Treasury currently yields 0.65%, the 10-year is at 1.43% and the 30-year is at 1.82%.  The 10-year Baa corporate bond yield is 3.14%. The 2-year AAA tax-exempt municipal general obligation bond yields 0.25%, the 10-year 1.03% and the 30-year 1.48%. All wonder how these worldwide benchmarks will finish the year and fare in 2022.

Looking Ahead to 2022

At HJ Sims, our representatives have been reviewing bullish, bearish and neutral strategies with clients looking ahead to the new year. As we have learned once again during this pandemic, having flexibility and access to intelligence and insight from seasoned professionals are critical. We have proudly assisted valued banking and investing clients in every market cycle since 1935 and, while we generally adopt a bullish long-term approach, particularly with respect to investments in essential public services, our guidance is tailored to your individual needs and goals while always taking into account prevailing market conditions. Our sales, trading, underwriting, analytic and investment banking teams stand ready to assist you as you finalize your 2021 investing and prepare for 2022. Let us know how we can help.

For readers of this commentary, we will be back in a few weeks to take a look at the some of the market-moving trends that carry us into 2022. But for now, all of us in the HJ Sims family wish you and yours wonderful holiday celebrations. May you feel as rich as George Bailey when surrounded by your family and friends, and enjoy only healthy and prosperous days in the new year.

For more information on the municipal bond market and current market trends, please contact your HJ Sims representative.

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