By Gayl Mileszko
Market Commentary
Branded For Life
We consumers like to think we are picky and price-sensitive, but we have our favorites and are loyal to many brands — no matter the mark-up. We have actually made quite a few of our favorite brands generic: Kleenex, Q-Tips, Xerox, ChapStick, M&Ms, Band-Aids, Jell-O, Velcro, Tupperware, Ziploc, Chlorox, Windex, and Jacuzzi, just to name a few. In a world of vast choice, we still reach for our favored names, the quality we know, the marketing jingles that resonate in our heads. Our loyalty might begin with Pampers and stay with us through our schooling, our jobs, our fast food, coffee-drinking, home, and car insurance-buying years. Might one brand take us from cradle all the way through our Visiting Angel phase of life?
Influencers
“Madison Avenue” has influenced untold numbers of our decisions and purchases over the years: A Diamond is Forever. Just Do It. We Try Harder. But TikTok and social commerce sites, AI search engines, niche online communities, webrooming, and showrooming have now become more prevalent and effective. Some mega-influencers have more than 10 million followers. We respond to many of the ads, platforms and pop-ups that assault us daily in different ways. Some of us choose to buy, like, share, or save the products or services being touted while others, even after so carefully and constantly being targeted, choose to override these suggestions and lures, and stick with the familiar products and service providers we know and trust.
Feeders
Trusted sources of referrals, often awkwardly referred to as “feeders,” have always been important to the growth and success of many houses of worship, schools, and athletic teams, for example. Brownie and Boy Scout troops, summer camps, political campaigns, and country clubs all rely upon referrals and recommendations from current members and dependable sources to recruit talent, boost enrollment, or gain votes. Some parents choose to send their infants, toddlers, and pre-schoolers to early learning centers with specific educational frameworks and curricula. Upon graduation, parents are likely to enroll their kids in an affiliated elementary and secondary school. Many of these high schools have developed close relationships with community colleges and universities so that dually enrolled students may earn college credits and one or more diplomas before entering the workforce. Employers with lasting ties look to these universities to recruit and retain talent. When employees eventually prepare to retire, they may look for senior living communities that have ties to that university. Retirement communities, in turn, often make referrals to assisted living, memory care and skilled nursing facilities. It is not surprising, then, that one brand, one business model, can take us from infancy to elder care under one umbrella.
The USA Brand
To protect us from the elements swirling around us today, we need more than a polyester umbrella over our heads. We as a nation have so many plans in the works and urgent needs to address. But it is hard to take a step in any direction without worrying about another landmine underfoot and what pressures might trigger it. We are at war and geopolitical conflicts dominate the stage. Terrorism in all its ugly forms remains a major threat. The labor market is cooling. Fiscal policies have led to a $40 trillion debt load. Tariffs have created friction with longstanding allies and aggravated tensions with adversaries. A form of stagflation plagues basic living costs including healthcare, energy, and groceries. There are deep divisions between political parties ahead of the mid-term elections. The 2028 presidential race will begin in November and promises to be quite nasty. Borrowing rates have risen to the highest levels in a generation. Interest on the debt, Medicare, and Social Security are eating up more and more of the budget. Has the USA brand been tarnished by our war-waging, weak governance, partisan bickering, overindulgence, and unpredictable foreign policy? Maybe. But our products are still in demand, our markets and economy are the envy of the world, and the appetite for our debt remains resilient. However, does any of this matter if, as some claim, AI will cause the demise of the entire human race in the near future? Can we humans control AI in the midst of an openly declared arms race and prevent uncontrollable systems from being built by superintelligent AI? The only answer to that question is “Yes. We must, and so we will.”
The New Fed Brand
On Wednesday, the Federal Open Market Committee raised its target rate by 25 basis points – the first increase since July 26, 2023. The decision was unanimous. The dot plot showed that 16 of 18 participants (Kevin Warsh did not vote once again) penciled in another rate hike this year. But the quarter point increase does not put a dent in inflation. Arguably, it made things worse for those in need of short-term funding, and those looking for a mortgage, a line of credit, or a car loan. But it was clear that the Fed had to do something to respond, to appear credible, to the bond markets, to attempt to address inflation, and demonstrate independence from the White House. Truth is: the bond markets had already done the tightening for them. Two-year Treasury yields at 4.73% have risen 120 basis points since the last rate action on December 10, 2025. The 10-year yield at 5.02% has increased 88 basis points and the 30-year at 5.36% is 58 basis points higher. The 2-year AAA municipal general obligation benchmark yield at 2.88% has risen 45 basis points, the 10-year at 3.74% is 97 basis points higher, and the 30-year at 4.91% has increased 69 basis points. Futures trading is currently pricing in one or two more hikes by year-end but, since the bond markets continue to lead, inform and drive the Fed, no further action may actually be necessary.
Better Branding Needed for Tax-Exempt Municipal Bonds
The new Fed chairman is a new variety of firebrand, a committed inflation hawk, although only only four months into his term. Markets are watching him and his initiatives closely, and the muni bond market is no exception. To avoid getting entangled in Treasury auctions, massive corporate bond AI offerings, and FY2027 funding fights, the muni market needs to continue to aggressively brand itself as a dynamic local infrastructure financing tool, one that is politically and regionally neutral, critical to local self-reliance. Many new Members of Congress that will come to Washington in January will see tax-exemption as a tax shelter for the wealthy, a handout to those in higher tax brackets, a fat old target to help offset higher spending elsewhere. But IRS statistics show that 65% of tax returns reporting tax-exempt income in 2022 were for households making under $200,000 per year. Eliminating the core feature of muni bonds would be an easy way to recapture about $15 to $25 billion a year. Every few years, however, constituent sewer and highway authorities, college presidents, town managers, mayors, and governors prove that munis are, in reality, the best way, the most transparent way, to finance essential public purpose projects. And there is arguably no better direct social impact investment that a household, insurer, bank, mutual, close end, or exchange traded fund can make.
We know that the private sector alone cannot construct airport terminals, hospitals, libraries, affordable housing, life plan communities, charter schools, or student dorms. And who else would have interest in lending to small, rural borrowers or 15-unit skilled nursing facilities? Without the lower cost financing available in the $4.3 trillion muni market, many critical community projects would not be viable. Without the exemption, state and local governments would have to increase local tax and utility rates, raise already high costs of living, and forcing competition with other communities for federal funding, project earmarks, and grants. Many smaller and unrated borrowers would lose access to capital altogether. Given the size of our debt and deficit, a possible shift in the composition of Congress, and the next presidential campaign about to begin, it behooves all governmental and non-profit borrowers to pay close attention to the budget debates as they heat up. And when — not if — the next elimination proposal is taken off the shelf and put on the table, be prepared to remind your elected officials about all the facilities and services that muni bonds have financed in your districts.
Senior Living and Charter School Brands in the Market
Last week, trading was impacted by the Labor Day holiday, the 9/11 commemorations, and the runup to the FOMC meeting. Nevertheless, there were $15.8 billion of new negotiated municipal bond issues for projects and communities in 26 states. Sales were impacted by conditions including negative Middle East headlines, higher oil prices, thin reinvestment monies, pressure on long Treasuries, heavy secondary supply with bids-wanted averaging $2.1 billion per day, and slowing fund flows with high yield funds seeing net outflows and ETF flows negative for the first time in 31 weeks, AAA benchmark yields surged throughout the week, and heavy issuance saw concessionary pricing. The 30-year muni benchmark yield reached 4.95%, its highest level since 2011.
The slate last week included a $30.2 million non-rated Iowa Finance Authority sale for Villas at Stoney Point Meadows in Cedar Rapids, structured with a single term bond due in 2035 that priced at par to yield 6.125%. The Clifton Higher Education Finance Corporation in Texas sold $101.4 million Aaa-rated PSF-guaranteed bond issue for Vanguard Academy in Mission, including a 2056 maturity priced with a coupon of 5.00% to yield 5.13%. And the Clackamas County Hospital Facilities Authority in Oregon brought a $150.2 million BBB-minus rated multimodal issue for Willamette View in Portland that featured a 2061 term bond priced at 5.75% to yield 5.92%.
This Week in the Municipal Bond Market
This week, markets have begun to digest the FOMC decision and are in rally mode at this writing. The 2-year Treasury yield is down 6 basis points, the 10-year Treasury yield has fallen 8 basis points, well below the 5% worry mark, and the 30-year is down 7 basis points. We expect a $240 BBB-minus sale through the Hudson County Improvement Authority in New Jersey for Canal Crossing Charter School. There is also a $149.7 million non-rated Sierra Vista Industrial Development Authority sale for the Eduprize Schools in Arizona. The $29.4 million Ohio Housing Finance Agency plans a $29.4 million sale for Ashford of Tiffin. The Public Finance Authority has a $39.6 million non-rated taxable financing for Chiara Housing and Services senior living in Arizona. And the Phoenix Industrial Development Authority is in the market with a $21.2 million non-rated drawdown offering for student-athlete projects at SSS Academies in Phoenix.
Please reach out to your HJ Sims representative for more information about the new issue muni calendar and the HJ Sims-branded deals in the pipeline. We welcome your thoughts on the markets as we share and discuss with you our views heading into the final quarter of the year.