By Gayl Mileszko
Market Commentary
Falling
Fall has arrived in the Northern Hemisphere and, for sports fans, it is unquestionably the best time of year. But for those in business and politics, it is just another extension of the wild season that begin with the inauguration of our 47th president. In major league baseball, the playoffs will soon lead into the World Series. In Washington, another government shutdown looms with no players on the field this week and no extra innings yet being scored. In college football, cinderellas are everywhere and fan fantasies are alive. On Wall Street, traders are having a ball while bracing for the Fed or the Congress to crash the party. The NFL is producing a new thriller every Monday, Thursday, and Sunday night. The White House is a source of breaking news around the clock and journalists have been alternating between Red Bull, Ambien and Pepto Bismol all year long. Basketball and hockey seasons are about to begin while the wars in the Middle East and Ukraine feel never-ending.
Falling Leaves and U.S. Dollars
As we approach the end of the third quarter, the leaves have already started to turn as cooler, dry conditions are stressing trees across the Northeast and Mid-Atlantic. The school semester is well underway and charter schools are celebrating all-time high enrollment, up 14.69% over the past 6 years. In the senior living and care sector, move-ins have exceeded move-outs for seventeen straight months. The U.S. Dollar Index is down 10% in 2025, the most since 2003, on rising debt service costs and tariff anxiety, but the economy is expanding at a 3% clip, the Federal Reserve just cut rates to help cushion the labor market and, although inflation has not been tamped down, it is well below the 9.1% peak of June 2022. Consumer demand remains resilient going into peak holiday buying season. Investors have been positioned for both growth and risk this past year: the S&P 500 Index is up 14% and gold prices have risen 44%, a rare tandem trade last seen in 1972. More than $7.2 trillion sits in U.S. money market accounts, where we see 4.26% taxable rates and 2.67% tax-exempt yields. Global money market assets have risen to $12.3 trillion, in part due to the uncertainty over federal funding for the year beginning in 5 days, tariff negotiations still underway, rising geopolitical tensions, and a stock market that appears to be significantly overpriced.
Falling Rates, Rising Yields
This week, there are 10 Treasury auctions and 17 Federal Reserve officials on the speaking circuit, cross-talking over rate expectations for the next few years. A bare majority of the monetary policy committee foresees another 50 basis points of cuts this year. The tiny quarter point reduction they made did nothing to lower mortgage or credit card rates. And, contrary to what many consider rational thinking, the 2-year Treasury yield at 3.58% has actually risen 3 basis points since the decision was announced. The 10-year at 4.10% is up 2 basis points, and the 30-year at 4.71% is 2 basis points higher. In fact, the same thing happened the last time the Fed eased in September 2024 when the bond market worried that the Fed was taking its eye off inflation and placing new pressure on longer duration securities.
Market Backdrop
Among other factors in play this week: the Trump Administration’s announcement on the new $100,000 price on H-1B visas, the FCC’s dealings with broadcasters, news of a potential treatment for autism, concerns over Tylenol, and progress on a possible new TikTok deal. Investors will scour this week’s economic data on GDP; new and existing home sales; building permits; personal income and spending; durable goods; consume sentiment and expectations; and the PCE price index. Many are dissecting events leading up to the big crypto selloff and how fast crypto ETFs are moving forward. On the international front, the United Nations General Assembly meets in New York for its 80th session, several of our closest allies recognize Palestine as a state, and President Trump calling out those who continue to buy Russian oil.
Muni “Fall Vol” Ahead?
The municipal bond market is still on a tear, with issuance on pace for an all-time annual high and demand boosting the primary market. Barron’s magazine described the asset class last week as a “bargain,” citing the attractive yields. There have been nine straight weeks of inflows into muni ETFs, which now number 133 with $166 billion under management. Conventional muni mutual funds have added cash for five straight weeks, and high yield funds alone took in $425 million during the period ended last Wednesday. Analysts are expecting the highest level of volume for the year to hit the market in October. Some strategists warn about “Fall Vol”, volatility that historically accompanies this period as a result of the steep decline in the amount of principal and interest being returned to investors after the summer peak, lowering demand for reinvestment opportunities. There are also higher bids-wanted par as bondholders look to make room for new deals, and some who worry that Fed rate cuts will soon make muni yields less attractive. Tax-exempts yields are not trending lower since the Fed rate cut last Wednesday. In fact, prices on benchmark munis have dropped even more than Treasuries over the last 5 sessions. The 2-year AAA general obligation benchmark at 2.08% is up 8 basis points. The 10-year yield at 2.91% is 5 basis points higher. And the 30-year yield at 4.24% has risen 5 basis points.
Falling Into Place
Away from the drop-off in sales last week as the markets awaited a rate decision, volumes are up significantly this week. Last week saw $8.4 billion of issuance. In the charter school sector, this included a $14.3 million Florida Capital Trust Authority deal for Team Success charter school in Bradenton structured with a 30-year final maturity priced with a coupon of 7.50% to yield 7.625%. Swallows Charter Academy in Pueblo West, Colorado came to market with a $21.8 million BAM-insured financing that featured a 2060 term bond priced at 4.75% to yield 4.91%. Sail School for Arts Infused Learning in Evans, Georgia had a $4.4 million non-rated deal due in 2055 priced at 6.75% to yield 7.32%. Dreamhouse ‘Ewa Beach in Kapolei, Hawaii brought a $28.8 million non-rated deal through the Wisconsin Public Finance Authority with a 2060 maturity priced at 7.375% to yield 7.50%.
The Muni Fall Fiesta Begins
HJ Sims is in the market with the charter school deal of the week: a $30.6 million non-rated Public Finance Authority issue for Explore Academy Rio Rancho in New Mexico, an expanding K-8 charter school. Municipal bond underwriters are expected to bring more than $15 billion in total par and the 30-day visible supply totals $20.3 billion. Among the non-rated deals on the slate, the Iowa Finance Authority is pricing a $21.1 million assisted living acquisition for Stoney Point Meadows of Cedar Rapids and a $55.5 million expansion and refunding deal for Presbyterian Homes Mill Pond in Ankeny. Okaloosa County, Florida has a $72.8 million acquisition and refinancing for Air Force Enlisted Village in Shalimar. The North Carolina Medical Care Commission has a $42.2 million refunding for Pennybryn at Maryfield in High Point. The Washington State Housing Finance Commission has a $76.6 million sale for Josephine Caring Community and Cascade Village of Smokey Point in Marysville. And the King County Washington Public Hospital District No. 4 has a $174.1 million offering for Snoqualmie Valley Health. We invite you to reach out to your HJ Sims representative for more information on our pipeline of new and secondary offerings and our upbeat bond market outlook for the final quarter of the year.