By Gayl Mileszko
Market Commentary
All’s Fair
‘Tis the season for state fairs and harvest festivals with all the contests and bounty they have to offer. Blue ribbon crested hens. Red ribbon Belted Galloways. Pig races. Sheepshearing contests. Milking parlors. Tractor pulls. Giant Clydesdales. Miniature horses. Giant blue squash. Ring tosses. Ferris wheels. Butter sculptures. And then there are the foods and beverages you absolutely must try. Kool-Aid pickle juice. BBQ martinis. Expressotini frozen seltzers. Hawaiian pizza slush. Fluffy cola. Pumpkin cider. Sangria sundaes. Giant turkey legs. Donut burgers. And everything fried. Fried Oreos. Fried quahogs. Fried Jello. Deep fried bubble gum. Onion blossoms.
Cheesecake Tacos
Of course, every state has its signature dish. This year, Texas has its deep-fried brisket Twinkies. Virginia has its hot Cheetos chicken on a stick. Massachusetts has its lobster ice cream. In North Carolina, look for the cotton candy iced tea. In Mississippi, it’s crawfish nachos. In Oklahoma, cheesecake tacos. In Arizona, unicorn donuts. In Alabama, outlaw fries. And in Washington, dill pickle pizza. These state fairs go on for weeks, so hundreds of thousands are bound to attend; in some states, more than 2 million. By some estimates, fairs and fairgrounds generate a combined $1.3 billion through sales taxes, vendor licensing, admission fees, rentals, and parking. Attendees typically find these fair days the very best of fall and they will spend an average of $78 apiece on food, drinks, carnival rides and souvenirs: a jar of honey, a cowboy hat, a homemade quilt, an engraved cutting board, a hand-drawn caricature of grandpa, a cookbook full of auntie’s prize-winning pie recipes.
Fair Warning
No prizes were given out at the 81st session of the United Nations General Assembly this week. It was no love fest, but no new wars broke out – at least not in front of the cameras. The theme “Restoring trust, managing transformation: A United Nations that delivers for all” fell as flat as the fried dough from a state fair fry cook. Among the 130 heads of state in attendance was President Trump, who has criticized the organization as inefficient and bloated, one that imposes “a far-left agenda of globalist bureaucrats” while failing to solve international crises. His administration has fought for sweeping reforms there, slashed this year’s budget by 15%, eliminated over 4,000 positions and cut many programs and agencies in half. The U.S. has withdrawn from about 31 U.N. agencies because “they no longer serve American interests.” During his whirlwind day in New York, the President pronounced himself a problem solver while threatening the annihilation of Iran, describing the U.S. as conquerors of Venezuela, and causing the Cuban delegation to walk out with his branding of the island nation as “an absolutely failed state” where “freedom will be coming.” He signed a new security agreement with Greenland, called for global cooperation on the regulation of “superintelligence,” and said he believes Iran will strike a deal to end the conflict after the U.S. mid-term elections. At this writing, there are only 40 days to go. The Iranian president insists that Tehran will never surrender its nuclear program.
Fair Weather
Markets have pooh-poohed the U.N. speeches and posturing as they usually do. The only issues that seem to move the needle involve not war but inflation: oil and diesel prices, and Fed rate-setting. Last week, the Fed bumped rates by a quarter of a point, as expected, and this week 11 Federal Reserve officials are out on the speaking circuit, with many spreading the word that more rate increases will be needed to beat inflation back to a 2% target. The latest economic data showed that retail sales increased by the most in 5 months, business inventories grew, jobless claims fell, pending home sales and new home sales were up, surprising markets and raising the odds of an October rate hike next month to 64%. The current target rate is 3.75% to 4.00%.
In a bit of a pickle
The $70 billion 5-year Treasury auction on Wednesday met with weak demand; the bid-to-cover ratio was at the lowest level in 8 years. Notes eventually cleared at 5.30%, the highest yield since 2006 and five-year rates closed over 5.00% for the first time since June of 2007 when the subprime mortgage market began to crack and inflation concerns spread. Oil prices rose for the first time in seven days, Bitcoin prices fell by more than $2,400, and stocks sold off. The Nasdaq lost 308 points after its new record close on Tuesday. Some in the muni market describe the rout in tax-exempts as “violent,” with yields up to levels not seen since 2011 when mutual flows suffered massive outflows in the aftermath of the Meredith Whitney default scare. Last week, mutual funds were hit with the first significant outflows in 3 months, losing a net of $1.8 billion. There is no panic in the market, but muni bids-wanted par has climbed to $3.4 billion, the highest total since March 2020 when the pandemic shutdowns began. At this writing, the 2-year AAA municipal general obligation benchmark stands at 3.21%, up 20 basis points from last Friday. The 10-year is 11 basis points higher, and the 30- year has increased 6 basis points. The Treasury selloff has also intensified. Since the start of the month, the 2-year yield at 4.84% has risen 50 basis points, the 10-year at 5.09% is 34 basis points higher, and the 30-year at 5.40% is up 16 basis points.
Donut panic
Yields are still below historic averages. Over the last 50 years, the 10-year yield has averaged 5.76% and the 30-year average is 6.13%. Some astonishing new records have been set of late. Muni ETF flows totaled $3.9 billion last week, the biggest calendar week total in their 993-week history, according to CreditSights. And the Census Bureau just reported that U.S. incomes in 2025 rose to a new record high of $87,460. U.S. business activity remains strong: this month, it accelerated to the strongest pace in 5 years with strong customer demand generating both new orders and jobs with manufacturing and service providers. These data points resonate with some of us, but how the rest feel about our economy and its promise will likely be seen in the results on Election Day.
No Fried Jello on the State Dining Room Menu
President Xi is in the U.S. for a three-day visit, four months after President Trump’s trip to China. He was met personally at Joint Base Andrews and will be wined and dined at a White House state dinner on Thursday. It is a hot ticket event: the menu has not been made public, but part of the guest list includes Jeff Bezos, Elon Musk, Michael Dell, Mark Zuckerberg, Jensen Huang, and Sam Altman. Staff have already hammered out an extension for the U.S.-China trade truce to January 10, but there is guaranteed to be some indigestion over AI, Taiwan, Iran, and Ukraine.
Municipal Fare
Buyers found several deals with sweet yields in the muni market last week. The Ohio Housing Finance Agency sold $29.2 million of non-rated assisted living bonds for Ashford of Tiffin structured with a 2046 maturity that priced at par to yield 6.50%. The Hudson County Improvement Authority sold $240 million of BBB-minus rated bonds for Canal Crossing Charter School, including a 2061 maturity priced at 6.50% to yield 5.98%. The Sierra Vista Industrial Development Authority brought a $149.7 million non-rated financing for Eduprize Schools featuring a 2066 term bond priced at 7.50% to yield 7.60%. And the Guthrie Clinic in Sayre, Pennsylvania placed $120.7 million of non-rated bonds due in 2054 that were priced at par to yield 7.375%. This week, the Virginia Small Business Financing Authority plans to sell $63.8 million of non-rated bonds for Citadel Housing and the Public Finance Authority is scheduled to issue $39 million of non-rated bonds for Chiara Housing and Services. In the charter school space, the PFA has a $20.4 million non-rated offering for Invictus Nashville. The California Enterprise Development Authority plans a $14 million non-rated transaction for Rover Springs Charter School. In the senior housing sector, the California Statewide Communities Development Authority is bringing a $523 million deal for the University of California Irvine, including a $136 million series for forward delivery in February.
Get Your Tickets Here
While hundreds of thousands of American families fill state fairgrounds around the country, hundreds of thousands of municipal bonds are trading. The last 5 trading days have seen 506,517 trades with par totaling $108.2 billion. The size of the muni market increased to $4.54 trillion in the second quarter, up 1.7% from the prior period. Household-held tax-exempts increased by 3% year-to-date, and investments in muni ETFs are up 19.2%. As we head into the final week of the third quarter, we expect more volatility for reasons other than credit quality. Munis are sometimes at the mercy of multiple market forces, although they have been remarkably stable this year. Yields are at very attractive levels for income investors and issuance remains heavy given the huge backlog of need: with over $511 billion already issued, we are on pace for a third consecutive record-breaking year. There is a decline in reinvestment demand with only $73.2 billion expected this month and next, versus $121.1 billion in July and August. Fund flows have reversed, at least for now. But deals are being priced and we expect the primary market in October to be very active as it is historically the biggest volume month of the year. For those wondering if this is a great time to invest or to plan market entry, reach out to your HJ Sims representative for guidance.