By Gayl Mileszko
Market Commentary
Chasing the Headlines
During the 1980 Winter Games in Lake Placid, inflation and interest rates hit historic highs and legislation was needed to stabilize the savings and loan industry. U.S. crude oil prices hit a then all-time high of $31.77 a barrel. It was the year of the “Miracle on Ice,” one of the biggest upsets in sports history. Five months later, the U.S. boycotted the Summer Games in Moscow to protest the Russian invasion of Afghanistan. In response, Russia boycotted the 1984 Summer Games in Los Angeles. Days ahead of that Opening Ceremony, regulators arranged a massive federal bailout of Continental Illinois. Oil prices stood at $27.70. Wall Street launched a historic rally on expectations that economic growth would stabilize without causing inflation (then at 4.2%) to rise further. In the summer of 1996, Wall Street suffered a major correction as computer and high-tech stocks sold off in heavy trading. Jobs reports reflected rapid growth, and investors feared a major rate hike by the Fed during its August meeting. TWA Flight 800 exploded in midair off the coast of Long Island and a pipe bomb was detonated during the Atlanta Summer Olympic games. Oil was priced at $21.01 a barrel. A major bribery scandal and concerns over financial liability threatened the 2002 Salt Lake City Winter Olympic games, but they went on in the aftermath of the 9/11 terror attacks and fallout from the Enron collapse. Oil sold at $21.50 a barrel.
IPO, FIFA, 350 for 250
This week, the headlines could not be bolder. On Friday, aerospace and satellite communications giant SpaceX is set to begin trading on Nasdaq; the 23 underwriters are targeting a $1.8 trillion valuation, the largest initial public offering in history. Retail investors have placed $70 billion of orders in advance. Two more mega IPOs for AI firms are expected to follow, and buyer acceptance of trillion-dollar price tags will be tested. From June 11 to July 19, the U.S. is co-hosting the FIFA World Cup at arenas in East Rutherford, Inglewood, Arlington, Miami Gardens, Atlanta, Seattle, Houston, Foxborough, Kansas City, Philadelphia, and Santa Clara. Russia has been suspended from participation in all international competitions for the last four years, and we have imposed an array of export, oil, bank, and travel sanctions to protest its invasion of Ukraine. 350 million Americans are about to celebrate the semiquincentennial of the Declaration of Independence on July 4. There are fireworks in the stock market, which experienced a historic rally with all-time highs followed by a sharp decline. Inflation stands at 4.2% and investors are once again anxious over the possibility of a forthcoming rate hike. Futures trading currently reflects a 51% probability of a 25 basis point rate hike in October rising to 68% in December. Oil is priced at $90 a barrel.
Below The Fold
There are plenty of other major news items lying below the fold, so to speak. The quasi-ceasefire is over, and the U.S. is stepping up its attacks on Iran. It is unclear how the conflict will be resolved. Differences, very public, are being aired with our ally Israel over war strategy. New data out this week show that inflation is running hotter. The European parliament is voting on a U.S. trade deal that could be a model for future agreements. Next week, there is a major G-7 meeting in Paris with President Trump attending. He turns 80 on Sunday. In addition to Iran, Ukraine is high on the agenda. The European Central Bank met this week and hiked interest rates for the first time since 2023. The Federal Open Market Committee meets next week, and markets will be watching how Chair Kevin Warsh conducts his first press conference and what new changes will be announced. Of particular interest will be the quarterly dot plot projections showing the number of dissents and outlying views. Prediction markets, now being seen as more valuable than any paid polls, show that it is unlikely that we will see the free flow of gas and fertilizer until January. The primaries are almost over, and the mid-term elections are only five months away. Candidates are being grilled on the Iran conflict, gas prices, beef prices, fertilizer prices, data centers, tariffs, immigration, and election integrity.
High Yield Municipal Bonds Lead Fixed Income
Stocks experienced a technology-driven selloff last week. The Nasdaq fell 4.7% and the S&P 500 lost 2.5%. Bitcoin prices dropped by 17%. Treasuries were also battered, in part due to a much stronger than projected jobs report that moved market indicators further into the direction of higher rates but also due to concerns over the war, inflation and the debt and deficit. The 2-year yield rose 14 basis points to 4.14%, adjusting to market expectations. The 10-year jumped 10 basis points to 4.53%. Investor sentiment reflected in the CNN Fear Index shifted from greed to fear. Quite to the contrary, municipal bonds rallied and did so amid a heavy $20.2 billion calendar. Risk-off trading and attractive relative yields drove retail and institutional money into tax-exempts, fueled by the size and variety of product, eight straight weeks of inflows into municipal bond mutual funds, and the $28 billion of principal and interest paid out on June 1. Another $30.4 billion is expected to hit accounts later this month. New deals were absorbed well, and several deals repriced at lower yields. Munis as a class are outperforming all other fixed income classes with the exception of convertibles. Non-rated bonds were again the best performers on the week and are up 2.52% year-to-date.
Hot off the Press
Municipal analysts had a field day last week, pouring through a wide array of offerings and news. The first week of June usually sees an unusually large slate. Redemptions historically peak this month, and there is momentum coming out of the Memorial Day weekend heading into the fiscal year end for many municipal issuers, including 46 states. A special district in Utah sold $381 million of non-rated bonds to expand a ski resort with housing, hotel, and commercial space. The deal was structured with senior, subordinate, and convertible capital appreciation bonds. Senior bonds due in 2057 priced at par to yield 5.875%. Google’s parent Alphabet became the first prepaid energy muni financing with a major technology company. The sustainable bonds issued through the California Community Choice Financing Authority were rated Aa2 and included a 2035 maturity priced at 5.00 to yield 3.78%. Among other firsts on the impairment side, the $80 billion tobacco sector saw a default on a principal payment by a Nassau County agency that sold $431 million of asset-backed bonds initially rated BBB in 2006, and the New Jersey American Dream at Meadowlands megamall missed an interest payment on $800 million of non-rated PILOT bonds issued in 2017.
The Charter School and Senior Living Beats
New municipal supply continues on track to set another annual high. Bloomberg reports $278.6 billion of year-to-date issuance, with $19.2 billion of non-rated sales and $1.74 billion below investment grade.
• In the charter school sector, so far this year Bloomberg reports 32 charter school financings with $1.05 billion of combined par, and 8 private school financings totaling $206.4 million. Approximately 33% or $426.9 million came as non-rated and $610.4 million or 48% was rated below investment grade. Last week, the Arlington Higher Education Finance Corporation issued $25.9 million of Ba1 rated bonds for Great Hearts America Texas that included a final maturity in 2061 priced at 4.75% to yield 4.80% and the Florida Local Government Finance Commission sold $35.3 million of non-rated bonds for the new Discovery Academy of Science in Pasco County campus featuring 2066 term bonds priced at 7.25% to yield 7.375%.
• Bloomberg has also reported 33 senior living and care financings with $2.62 billion of combined par in 2026; $1.72 billion or 66% were non-rated bonds and $224.4 million or 8% were below investment grade sales. Among the deals sold last week was a $107.1 million Washington State Housing Finance Commission deal for Heron’s Key in Gig Harbor, structured with a 2051 maturity priced with a 5.25% coupon to yield 4.82%.
Features this Week
HJ Sims is in the market with a $117.1 million of non-rated bonds for Jackson Day School, a K-12 charter school in Charlotte, North Carolina with 920 students and another 1,401 on the wait list. Bonds are being issued through the Public Finance Authority to finance a new campus expected to open in December 2027. The $16 billion calendar of negotiated sales also includes transactions for four other charter schools: Syracuse Arts Academy, Academies of Math & Sciences, Firestone Charter Academy, and George Washington Academy. In the senior living sector, the slate includes two deals coming through the Virginia Small Business Authority: a $306 million non-rated sustainable issue for the Caring Forever Obligated Group, and a $146 million BBB rated sale for Lifespire of Virginia.
For more information on our signature approach to partnering, structuring, and executing for our banking clients, and the solutions we offer to our investing clients, please contact your HJ Sims representative.