Market Commentary: Foo Fighters

by Gayl Mileszko

Sunshine and good news abound. Summer-like conditions prevail in many parts of the country as school vacations begin. The FDA has approved a new experimental drug Aduhelm that may help many of the 6 million Americans suffering from Alzheimer’s disease. The FBI’s new crack cyber task force wizards managed to recover more than half of the $4.4 million that Colonial Pipeline paid in ransom to hackers last month. The number of job openings has set a record at 9.3 million as the labor market has started to boom again. Madison Garden is reopening for the first time in 15 months for a full-capacity concert with the Foo Fighters, and Central Park is promoting a mega concert with other big-name performers for late August. The Transportation Security Administration screened 1.98 million air traveling passengers on Sunday, a 15-month high. Weekly hotel occupancy at 61.8% is finally back to where it was in late February 2020. The CDC has just okayed the first two cruise ships to set sail from U.S. ports in late July. Jeff Bezos, his brother, and one lucky guest will board a capsule attached to the reusable rocket Blue Origin on its first 11-minute suborbital tourist flight high above our Earth in July.

We celebrate this new season and rosy outlook, knowing that our globe’s battle against COVID-19 is by no means over. On Sunday, there were 220,684 new cases and 5,230 deaths logged around the world. In the U.S., we had 13,276 new cases and we lost another 225 to this scourge, as the debate rages on as to whether it was man-made via research that was funded with our own tax dollars, or “natural”. Our labor market, in any event, is still 7.6 million below pre-pandemic levels and, on top of precious losses and dark lockdown memories, the impacts will last for years. Struggles in one given sector had ripple effects on many others. There were 544,463 Chapter 7, 11 and 13 bankruptcy cases filed in 2020 according to the American Bankruptcy Institute; through May of 2021, another 182,655 were filed. 

The extraordinary fiscal stimulus, resurgence in demand, and ongoing supply disruptions have produced a pickup in inflation (4.2% in April) and what Barron’s described as “The Shortage of Everything” in its May 28 cover story. Lumber prices have increased 340% in the past year, and Americans looking to buy homes should expect to pay over $35,000 more for a newly built house. Tax talk has taken on a new dimension with the G-7 finance ministers’ agreement on a 15% minimum global corporate tax, but – as with the Administration’s domestic proposals – this is by no means a sure thing given the diversity of interests involved. With respect to employment, women have been disproportionately affected by job loss, burnout, and loss of income as they became – and in many cases still remain — full time caretakers and home schoolers. On the health care front, those with conditions who postponed elective procedures and those who did not seek preventive care are slowly returning to the health care system but with more acute care needs. Some who need 24/7 care have yet to enter skilled nursing facilities; occupancy is 13.2 percentage points below the February 2020 level of 84.8%. Many seniors continue to rely on family and friends for assistance with care and medications; occupancy in assisted living communities fell to a record low of 75.5% in the first quarter of 2021. The National Investment Center for Seniors Housing & Care (NIC), however, reported a small uptick in April.

The National Opinion Research Center (NORC) at the University of Chicago last week published a report funded by NIC on COVID-19’s impact on seniors housing. Contrary to what media headlines would lead seniors and/or their adult children decisionmakers to believe about the safety of congregate facilities, they found that 51% of all properties reported no coronavirus related deaths at all: 67% of independent living communities, 64% of assisted living properties, 61% of memory care communities, and 39% of skilled nursing facilities. In independent living settings, resident deaths were statistically comparable to the rates of death for older adults living in non-congregate settings in the same geographic area.

So far this year, there have been approximately 27 senior living bond issues in the municipal bond primary market for a total combined par value of $1.34 billion. These sales have been for start-ups, expansions and refinancings in California, Florida, Illinois, Indiana, Iowa, Maryland, Minnesota, New Hampshire, New York, North Carolina, Ohio, Pennsylvania, South Carolina, South Dakota, Wisconsin, and Washington. As one of the nation’s oldest underwriters of tax-exempt senior living bonds, we are upbeat on the future of this sector and look forward to sharing our unique structuring ideas with new and valued banking clients. For our investing clients, we feature an impressive forward calendar of new money and refunding bond deals to discuss with your HJ Sims financial professional.

Since the beginning of March 2020, financial market volatility as measured by the VIX has fallen by 59%. As of this writing, the Dow is up 9,221 points or 36%, the S&P 500 is up 1,272 points or 43%, the Nasdaq has gained 5,314 points or 62% and the Russell 200 has risen by 843 points or 57%. Oil prices are up more than $24 a barrel, or 55%, to $69.23. Gold prices have gained $309 an ounce, or 19%, to $1,895. Silver prices are up 67% or $11 an ounce to $27.90. Bitcoin has skyrocketed by 318% to 35,804. In the bond market, the 2-year Treasury yield has fallen from 0.91% to 0.15%. The 10-year benchmark has, however, risen 42 basis points to 1.56%, and the 30-year long bond is up 57 basis points to 2.24%. The 10-year Baa corporate bond yield is down 6 basis points since the pandemic began.

Municipals remain in somewhat of a world of their own among bonds, performing well above their taxable counterparts given the supply/demand imbalance involving tax-exempt instruments. At this writing, Treasury bonds as measured by the BoAML indices, have a negative YTD return of 3.32%. High grade corporate bonds are down 2.41%, but preferreds are up 1.09%, high yield corporate bonds are up 2.62%, corporate convertible bonds are up 3.09%, and leveraged loans are up 3.10%. Investment grade municipal bonds are up 1.20%, while high yield municipal bonds are returning 4.48%. At the time of publication, the 2-year general obligation bond yield has dropped 64 basis points since the start of the pandemic to 0.09%, the 10- year is up 7 basis points to 0.94% and the 30-year has dropped 8 basis points to 1.44%.

Last week was shortened by the Memorial Day holiday and this week began with a commemoration of the 77th anniversary of D-Day and the Battle of Normandy when “Foo Fighter” was a term used by Allied pilots to describe mysterious UFOs seen in the skies over the European theater. The corporate bond calendar totaled $27 billion, with $21 billion coming as investment grade, 70% with maturities of seven years or less. High yield new issues came with B2 rated deals in the 5.375% range and CCCs around 7.125%. High yield corporate bonds saw outflows of $385 million while high yield muni funds took in $372 million

This week’s municipal bond calendar will also feature fast moving items that quickly vanish. It will exceed $10 billion and is dominated by $2.65 billion of Kaiser healthcare bonds that may come with taxable, corporate CUSIP and/or municipal series. Among the high yield non-rated deals this week: a $263 million taxable Maryland deal for SSA Baltimore, a $58 million green bond deal for last Stop Recycling in South Carolina, a $51 million issue for New World Prep Charter School in New York, and an $8 million sale for Maranatha Christian Academy in Kansas.

Exclusive Opportunities For Our Clients