By Gayl Mileszko
Market Commentary
Imagine
Imagine being on the mound at T-Mobile Park in Seattle. It is the first inning. There are already runners on first and third and you are nervous. You have never faced this batter before. Over the years, you set a few records in college and the majors, but you are about to become a very big footnote. You are the starting pitcher for the Mariners, Logan Gilbert, and the batter is outfielder Carlos Cortes who plays for the homeless Athletics, once of Oakland, currently sharing a minor league park in west Sacramento with the River Cats, eventually moving to Las Vegas in 2028. You wind up and throw a slider. It clocks at 86 mph and promptly comes right back at you in a line drive at 108 mph. Ouch. The ball hits you hard and somehow strangely lodges in between the buttons of your jersey but you are unaware. The crowd gasps. What happened to the ball? Everyone, even you, looks around for it. Then, abracadabra, you pull it out of your shirt. The four umpires quickly call time and huddle to discuss this never-before-seen event. But there are rules for even the rarest scenario in Major League Baseball, and so they deem it a lodged ball, a dead ball — not a legal catch. The umps give Cortes a hit, calling it an infield single, allowing the runner on first to move to second base, and making a judgement call to hold the runner on third. With the bases loaded and a bruised belly, you go on to face two more batters then 15 more in the next three innings. Who says baseball is boring?
Zero-Fail
Plenty of jobs are anything but boring these days. Imagine being the Secretary of State and acting national security adviser, juggling decisions impacting the future of Venezuela, Cuba, Mexico, Iran, Greenland, Taiwan, and NATO, among others. Imagine being Admiral Brad Cooper, head of the U.S. Central Command, responsible for overseeing the naval blockade of Iran from the Pentagon. Imagine being a Secret Service Agent tasked with a zero-fail mission: protecting the president from assassinators. Imagine being Jerome Powell, the 16th chair of the Federal Reserve, the subject of relentless public criticism from the president, the target of a recent Department of Justice investigation, the central bank spokesman who voluntarily subjected himself to press conferences to calm markets for nearly 8 years and mastered the art of Fed speak, the art of saying nothing with as many ambiguous, jargon-heavy words as possible. Or imagine being Kevin Warsh, on the cusp of being confirmed to take over that post, trying to pull a rabbit out of a hat by simultaneously lowering rates, shrinking the balance sheet, holding down inflation and unemployment during a time of war and massive technological change, while withstanding both Congressional interrogations and presidential pressures.
Optimism
It is hard to imagine being the House Speaker, a small private college president with few endowment funds, or one of the poor customs agents trying to process all those tariff refunds. It is quite fun, however, to imagine being an astronaut just back from the dark side of the moon, one of the men who just broke the 2-hour marathon record, or Elon Musk, Sam Altman, or Dario Amodei, about to launch a trillion-dollar IPO. By and large, borrowers in the municipal and corporate bond markets are happy with the reception being given to their deals by institutional and retail buyers Consumer sentiment may have fallen to a new low, but investors are optimistic about the future and are ponying up plenty of cash to prove it. Investment grade corporate bond sales total more than $775 billion, and high yield sales exceed $116 billion. Muni issuance at about $184 billion is still on a record-setting pace, up more than 9% over last year. Last week, HJ Sims brought two non-rated financings for Bonesta: a $104.8 million non-rated financing through the Maricopa Industrial Development Authority, and a $58.3 million issue by the Washington State Housing Finance Commission; we structured the deals with a 40-year final maturity that priced with a 7.00% coupon to yield 7.25%. We also had a $55 million BBB rated transaction for Porters Neck Village in Wilmington, North Carolina; bonds sold through the North Carolina Medical Care Commission had a final maturity in 2061 priced at 5.125% to yield 5.25%.
Market Movers
This week, investors will follow the results of 9 Treasury auctions and digest economic releases on PCE, GDP, housing starts, durable goods and consumer confidence. It is a huge week for tech earnings reports: Amazon, Meta, Microsoft, Google, and Apple. Traders will monitor the remarks made by the visiting King of England and the ramped-up security precautions taken for the President. Attention is being given to the overseas central bank meetings in England, Japan, Canada, and the European Central Bank. But the Federal Reserve has the spotlight: the Senate Banking Committee vote on Kevin Warsh and Jay Powell’s final press conference as Chair, his announced plans for the future. No one expected a change in the Fed funds rate at 3.50%-3.75% or any real forward guidance, given the transition underway. No doubt the moment was bittersweet for Mr. Powell. He presided over 70 open market committee meetings, several unprecedented market interventions during the pandemic crisis, buying staggering levels of Treasuries and mortgage-backed securities, holding rates near zero for far too long – or not long enough in the view of some. Under his leadership there were 14 rate hikes and 10 rate cuts, and he will appear in dozens of Fed history footnotes. He has been overseeing a controversial multibillion-dollar renovation project and leaves the Fed with a three-year operating loss totaling about $243 billion and more than $1 trillion of unrealized losses in its securities portfolio. He, and the bank, have certainly been major global market movers.
Quiet High Yield Slate
The last trading days of April are upon us and there are very few high yield offerings in the primary market during Fed week. The corporate market has only four on the slate. The municipal calendar includes a $44 million Ba1 rated Colorado Educational and Cultural Financing Authority (CECFA) deal for Monument Academy and a $158.4 million non-rated student housing sale for CFP3-Ohlone Community College’s Newark, California Campus. Among negotiated investment grade sales, the CECFA is bringing a $41.6 million BBB+ rated transaction for Christian Living Communities, and 12 corporate deals have priced. At this writing, the 2-year AAA municipal general obligation benchmark yield stands at 2.40%, just about where it stood at the start of the year. The 10-year is at 2.95%, roughly 19 basis points higher. And the 30-year is at 4.32%, up about 8 basis points. Fund flows are positive for the year; CreditSights reports a net of $14.7 billion for mutual funds and $15.3 billion for muni ETFs. Tax-exempt money market assets total $142 billion. Muni bondholders are about to receive $20 billion of principal and interest on May 1. Investment grade, high yield, and taxable muni indices are all returning over 1% this year.
We look ahead to these first few days of May, a season of sunshine and growth, a time when all things seem possible. Be sure to reach out to your HJ Sims representative this month to review your positions and plans and let us know how we can help make what you imagine a reality.