by Gayl Mileszko
One of America’s bestselling writers, R.L. Stine, has been referred to as the “Stephen King of children’s literature.” But his long line of scary children’s books came fairly late in his career. He first began writing at age nine, when he found a typewriter in his attic and began to hunt and peck and punch out short stories and joke books. Stine since devoted more than twenty years to writing funny tales and editing humor magazines for youngsters and tweens. But he came to discover that scaring folks is easier than making them laugh. “Everyone has a different sense of humor, but we all have the same fears,” he said. “Kids are all afraid of the dark, afraid of being lost, afraid of being in a new place. Those fears never change” he added, and they tend to be universal. In capitalizing on this discovery, his Goosebumps horror fiction, in which characters encounter the strange and supernatural, has seen sales of 400 million copies in 32 languages, making his the second best-selling series in history after J.K. Rowling’s Harry Potter.
The Goosebumps books are written at a third to seventh grade reading level, unlike the minutes of the Federal Open Market Committee which cater to the ivory tower crowd. They feature no violence or death, unlike the trade press which has been reporting on the past year’s devastating market losses in brutal detail, and the mainstream media which has documented pandemic casualties for the past three years. A common theme in Stine’s writing is the use of wit and imagination to escape horrendous situations. This is an approach that we all cling to in this second decade of the third millennium as we wrestle with all our grown-up fears: Russia’s initiated war, terrorism, nuclear and biological warfare, overwhelming debt, stagflation, high interest rates that could trigger a lengthy recession, another pandemic, rampant crime, deep political divides that could lead to widespread civil unrest, government corruption, chronic disease, and insufficient health and retirement savings, just to name a few.
Borrowing Amid Rate Uncertainty
Fear of a repeat of 2022’s financial devastation has crept back into the conversation on Wall Street and at kitchen tables around the country. After a very strong January performance in stocks and bonds, February saw a reversal of most gains. Many investors and borrowers felt a new wave of uncertainty over how high the Fed will go in raising rates, when they might pause, what economic signals will finally cause them to reverse course. Economic data have added to the confusion. We had a blockbuster jobs report and consumer spending remains strong despite the high prices. Corporate balance sheets are relatively strong and credit is widely available, albeit at higher rates. But even as the 2-year treasury yield rose 61 basis points during the month, and 10-year rates increased by 42 basis points, companies came to market with $150 billion of investment grade bonds in February, a new record for the month.
On the Sidelines
The central bank’s aggressive tightening moves to combat stubborn inflation have had a major impact on mortgage rates, housing starts, home prices, and household debt. Consumer confidence has slipped this month and, once again, some 60% of Americans, including 45% of high income earners, are living paycheck to paycheck according to a new LendingClub report. In the municipal market, many borrowers with pending projects and refinancing needs have stayed on the sidelines despite the fact that 30-year rates remain below that of December, and well below those prevailing from 2002 to 2010. During the month, as the 2-year AAA rated general obligation benchmark yield increased by 78 basis points, the 10-year rose 40 basis points and the 30-year went up 36 basis points in February, municipal bond issuance fizzled. Only $18.3 billion came to market, well below the 10-year average of $27.8 billion, and 42% below last year. There is a big pipeline of deals and buyers anxiously awaiting them.
February Volatility and Negative Returns
Bond market volatility as measured by the MOVE Index jumped 24% in February while the comparable VIX measure for stocks rose almost 7 percent. The Nasdaq closed the month down 1.15, the S&P 500 ended 2.6% lower and the Dow finished down 4.2%. Oil prices fell 3%, gold prices dropped 5.2% and silver prices fell 11.7%. Bitcoin finished 1.7% higher but most base and precious metals report losses. High yield corporate bonds fell about 1.48% but are up 2.28% this year. Investment grade municipal bond index returns for the month were negative 2.33%. High yield muni returns also fell, but remain positive at 1.38% year-to-date.
Recent Municipal Issuance
During the last full trading week of February, municipal bond funds and ETFs had $1.6 billion of outflows, the municipal calendar totaled $3.4 billion, and high yield buyers saw two charter school financings come to market. The Passaic County Improvement Authority in New Jersey issued $33.4 million of BBB-minus rated revenue bonds for Paterson Arts and Science Charter School that came with a 2058 maturity priced at 5.50% to yield 5.60%. And New York’s Build NYC Resource Corporation sold $10.1 million of nonrated bonds due in 2055 at par to yield 7.25% for Family Life Academy Charter School. This week’s slate includes only about $5 billion of volume, just as investors saw $12.7 billion of principal and $6.3 billion of interest hit their accounts on March 1.
Markets in March
March is typically the weakest month of the year for munis. It begins with a series of six Federal Reserve speaking events ahead of the next FOMC meeting in three weeks. Key economic data releases will impact trading for the next two weeks. Futures trading reflects market expectations for a 25 basis point increase on March 22, and two more quarter point hikes in May and June before a pause through the end of the year. There are three Treasury auctions scheduled this week. Corporate bond underwriters anticipate another $150 billion of investment grade offerings Money market funds are at an all-time high of $4.8 trillion. The SIFMA 7-day tax-exempt index yield remains elevated at 3.42%, and the 10-year muni/Treasury ratio is at 66%. The Treasury curve has been inverted since last July; the highest yielding government securities are the 6-month bills at 5.16% and the 12-month maturity at 5.06%. At this writing, the 10-year yield benchmark for the world stands at 3.98% and the 30-year is below that at 3.95%. On the tax-exempt side, the short end of the muni curve has been inverted since December. The current top rated 1-year muni yield is 3.03% while the 10-year is at 2.59% and the 30-year at 3.52%.
Tax Season and The Approaching End of the First Quarter
We expect to see some additional mutual fund and ETF outflows as we draw closer to Tax Day payments due on April 18. For those with early tax refunds, as well as those borrowers with financings that have been on hold, and any investors with fears of missing out or fears of joining in, we encourage you to contact your HJ Sims representative this week for guidance. Like the protagonists in the Goosebump series, we combine our wits with yours to help you achieve good outcomes like income.
For more information on offerings or questions about current market conditions, please contact your HJ Sims representative.