HJ Sims Market Commentary: Delivery Charges

by Gayl Mileszko

The U.S. postal system was established by the Second Continental Congress on July 26, 1775 and Benjamin Franklin was paid $1,000 dollars a year to serve as its first postmaster. He was charged with establishing a national service at a time when it took months for mail to arrive from near or far and spotty deliveries were made to local taverns and inns. Franklin, the “MacGyver” of his times, rolled up his sleeves and set up more efficient delivery routes from Florida to Maine with wagons traveling in relay teams by day and night. He rolled out the first rate chart to standardize delivery costs based on distance and weight. After he was redeployed to France as a diplomat, the former Massachusetts Congressman Samuel Osgood took his place as the first official Postmaster General under our brand-new U.S. Constitution, initially presiding over a network of 75 colonial post offices.

Neither Snow Nor Rain Nor Heat

Two hundred and thirty three years later, even in this era of emails, texts, Instagram, Facebook, Twitter, Amazon, FedEx, UPS, DHL, Walmart and bike messengers, the Postal Service is the largest civilian employer in America. The 75th Postmaster General, Louis DeJoy, is the second highest paid official in government, managing about 569,000 career workers in more than 40,000 offices delivering more than 200 billion pieces of mail every year via one of the largest fleets in the world with 227,896 vehicles including planes, vans, trains, ships, buses, snowmobiles and even, to those residents of Supai, Arizona at the bottom of the Grand Canyon with a heat index today of 98.6 degrees, mules.

Pack Mules

There is so much to write about these days, it is hard to keep up, to sort it all out. We often feel like the pack mules, burdened by heavy loads of information of all kinds dropped on us during every waking hour from the electronic devices that accompany and surround us. We try to sift through it all for clues as to how to lead our lives, what to watch out for, how to invest, for whom to vote. Sometimes we find ourselves wishing it would take more than a month for the news to arrive by pony express so that we had more time to digest it and respond with more thought and care. But, no, the headlines and details keep coming. In the Russia-Ukraine war, which has been raging for more than six months now, Europe’s largest nuclear plant, the Zaporizhzhia facility in southeastern Ukraine, has been shelled for three days. Moscow has suspended inspections of its nuclear weapons facilities and launched an Iranian satellite. China is holding military drills in the six zones encircling Taiwan in response to the U.S. House Speaker Pelosi’s visit to Taipei last week. The FBI just raided the home of a former president. A $430 billion tax and spending bill with a mislabeled title ekes through the Senate with the help of a vote from the Vice President, her twenty-six such tie-breaker, only days ahead of the latest inflated inflation report. The migration crisis has begun to hit home in New York and Washington as thousands who have illegally crossed the borders in Arizona and Texas are being bussed to sanctuary cities. Primary vote counts are underway in Wisconsin, Vermont, Minnesota and Connecticut.

Fed Expected to Deliver Another Big Rate Hike

Investors, consumers, vendors, operators and those who analyze us all have been giving most attention to inflation, rising interest rates and the prospect of recession. Debate will rage until the next policy decision is delivered by the Federal Open Market Committee on September 21. The fourth federal funds target rate hike in five months has brought us to the range of 2.25% to 2.50%. Futures trading shows more than a 68% probability that another 75 basis point increase lies ahead in six weeks, about to impact mortgage, credit card and other borrowing costs here and around the world. The latest Consumer Price Index data released Wednesday morning shows that inflation, while at a 40-year high, has just dipped slightly from an annualized rate of 9.1% to 8.7%, primarily due to a decline in gasoline prices which somewhat offset increases in food and shelter costs. The White House and Federal Reserve point to Friday’s exceptionally strong jobs numbers and rising wages as proof that we are not in a recession. Corporate earnings are better than feared, with 78% of reports beating Wall Street expectations, and job openings still high. The U.S. has reportedly now recovered all of the jobs lost during the pandemic. But 23% of us say that we have no emergency savings, household debt is at a record high $15.84 trillion, GDP has been negative for two straight quarters, consumer confidence has dropped for the last three months, jobless claims have been edging higher, existing home sales dropped for a fifth month, and several companies have announced freezes and layoffs.

Posting Market Performance So Far in August

During the first six trading days of August, the Dow and S&P 500 are virtually unchanged while the Nasdaq has gained 2 percent and the Russell 2000 is up 3 percent. Oil prices have fallen 8 percent to $90.76 a barrel while gold and silver prices are up more than one percent and Bitcoin prices have risen to just under $24,000. Bond prices took a dive after Friday’s jobs report came in above consensus. Treasury yields, in particular remain askew: the 2-year at 3.20% has increased 32 basis points from the start of the month; it is 45 basis points higher than the 10-year yield at 2.75%, and stands 22 basis points above the 30-year benchmark at 2.98%. The 3-month-to-10-year spread, the comparison most closely followed by recession-watchers, has narrowed by more than half — to 15 basis points from 33. The 10-year BAA corporate bond yield has bounced up and down within a 12 basis point range and just settled back to 5.50%. Volatility as measured by the CBOE Volatility Index stands at 20.73, below the 2022 average of 25.98 and well off the high of the year on March 7 at 36.45.

Municipal Bonds Deliver Value

On the tax-exempt side, yields have risen as well despite the startling imbalance of demand and supply, $52 billion of cash from principal and interest payments, and new inflows into municipal bond mutual funds. The 2-year AAA general obligation benchmark at 1.69% is 9 basis points higher so far this month. The 10-year at 2.24% has increased 3 basis points, and the 30-year at 2.91% has gained 2 basis points. Unlike the Treasury curve, which has been inverted since July 5, the municipal yield curve remains upward sloping and we see value on the long end and in higher yielding credits. Municipal Market Analytics reports that there have been only two instances since 1964 when munis have seen brief inversions: the 2-year and 5-year spread fell below zero in August, 1973 and December, 2006; in September 1966 the 2-year and 10-year yields flipped; and 1-year yields closed higher than 4-year yields for six days in late August 2019. Investors looking for yield offerings last week found several on the $4.85 billion calendar. LaRoche University in McCandless, Pennsylvania had a $20 million non-rated financing that included 2046 term bonds priced at 6.75% to yield 7.00%. The Build NYC Resource Corporation came with a $21.6 million BB+ rated deal for Global Community Charter School in Harlem structured with 35-year term bonds priced at 5.00% to yield 4.78%. And Bridger Aerospace Group had a $25 million non-rated, taxable sustainable industrial development bond issued through Gallatin County, Montana due in 2027 and priced at par to yield 11.50%.

First Class Tax-Exempt Sales This Week

This week’s municipal calendar is expected to total $6 billion, led by a $990 million AA rated Los Angeles International Airport refunding and a $400 million Aa3 rated Triborough Bridge and Tunnel Authority sale. In the charter school sector, the Florida Development Finance Corporation has a $44.1 million BB+ rated sale planned for Cornerstone Charter Academy in Belle Isle, and a $49.6 million issue for Central Charter School in Lauderdale Lakes. The Colorado Educational and Cultural Facilities Authority is bringing a $26.1 million BBB rated financing for James Irwin charter schools in Colorado Springs. We invite you to keep an eye on our own future new issue offerings in this essential public service sector. Please contact our HJ Sims representative for more information on how to invest in charter schools, and how these credits may help to charge up your portfolio and boost your tax-exempt income.

For more information on offerings or questions about current market conditions, please contact your HJ Sims representative.

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