by Gayl Mileszko
The Greek god of wealth, Plutus, was said to be born on the island of Crete to the son of a local hero named Iasion and the goddess of fruitfulness, Demeter. Zeus blinded him when he was very young so that he could not tell good from evil and bless wealth not just onto those who were deserving of it but onto everybody. Plutus was also lame, and was reported to take his time arriving. He had wings, and was often said to leave faster than he came. Greek artists usually depicted him as a baby sitting in the arms of Tykhe, the goddess of good fortune, or Eirene, the goddess of peace, to show that wealth rarely comes alone but often hand-in-hand with one or the other. In Dante’s Inferno, Plutus was depicted in the end as a wolf-like demon guarding the fourth circle of Hell, “the Hoarders and the Wasters.”
Wealth today is generally defined as the value of all assets of worth owned by a person, community, country or country. Back in the heyday of the pantheon of the Greek gods, wealth was largely measured in agricultural terms. Today, respondents in the latest annual Schwab modern wealth survey concluded that having a net worth of $1.9 million qualifies a person as wealthy. However, the top 1% of households by income lost almost 16% of their overall wealth from the fourth quarter of 2021 to the third quarter of 2022. Wealth for the rest of the top 20% fell by nearly 11%, and many of those in lower brackets lost almost 10%. Today, the average net worth of U.S. households is $748,000, but the median is much lower at $121,700. In the end, wealth is most often measured in the eye of the beholder, varying by age, family, generation, health status, location, career, community, background and other factors. And perhaps the only real measure of wealth, as preacher John Henry Jowett once said, is how much you would be worth if you lost all your money.
A Wealth of Experts Gathered Last Week
There was a wealth of expertise, advice and camaraderie at the 20th HJ Sims Late Winter Conference last week in Sarasota. More than 400 operators, providers, vendors, analysts, investors and bankers involved in the financing of senior living communities and charter schools gathered to hear keynote speakers and participate in panels exploring a wide variety of topics including alternative senior housing models, intergenerational housing demand, the impact of migration trends and mortgage rates on the housing market, the growth in ancillary services, board governance best practices, bondholder disclosure enhancements, managing construction and development costs and determining value. For those who were unable to join us this year, we will soon circulate summaries of our discussions along with the dates for our next annual event.
Recent Municipal Bond Sales
In the past two weeks, $12 billion of municipal bond issues came to market. HJ Sims underwrote a $13.9 million non-rated start-up financing for Capital College and Career Academy in North Sacramento, California. The bonds were issued through the California Enterprise Development Authority in $100,000 denominations and included a 2037 maturity priced at par to yield 7.60%, and 40-year term bonds priced at par to yield 8.00%. Among other negotiated sales, the Illinois Finance Authority brought a $73.2 million BB+ rated transaction for DePaul College Prep Foundation structured with a final maturity in 2053 priced at 5.625% to yield 5.68%. The Louisiana Local Government Environmental Facilities and Community Development Authority had a $12.5 million non-rated deal for Downsville Community Charter School that featured 2062 term bonds priced with a coupon of 6.625% to yield 6.68%. And the California Public Finance Authority sold $29 million of non-rated bond anticipation notes for the new Kendal at Ventura senior living community due in 2028 and priced at par to yield 10%.
Borrowers Waiting for Rates to Stabilize or Drop
This week’s slate is shortened by the Presidents’ Day holiday and totals about $4 billion. It includes a $32 million BBB-minus rated financing for Paterson Arts and Science Charter School in New Jersey coming through the Passaic County Improvement Authority. This as well as all other negotiated and competitive sales are taking place amid fairly volatile conditions that are producing higher yields day after day, elevated bid-wanted lists and offering par, and negative returns. The bond market’s gauge of volatility, the MOVE Index, has risen 10% this month as investors remain deeply concerned about the negative impacts of higher rates on top of stubborn inflation and a recession that has been predicted since 2021. Many investors who have been sitting on cash while watching the selloff this month see buying munis as “akin to catching a falling knife” according to one Bloomberg strategist. And borrowers waiting for the world to change, and lower rates to return, may find themselves waiting for quite some time.
Treasuries and Fed Expectations Drive Market Direction
Moving in line with futures trading expectations for additional Federal Reserve rate hikes to reach 5.00% to 5.25% in May, and remain there for the rest of the year, the 2-year Treasury yield at 4.61% has increased 41 basis points in February. The 10-year yield at 3.81% is 31 basis points higher, and the 30-year at 3.86% is up 23 basis points. The yield curve has been inverted since last July. The highest yields across all maturities are the 6-month at 5.10% and the 12-month at 5.04%. All other bonds yields have reflected these Treasury moves. The 2-year Baa corporate bond yield at 6.34% is higher than the 5-year yield at 6.01% and the 10-year yield at 6.32%. Equities, as measured by the Dow, S&P 500 and Russell 2000 are basically flat on the year, while oil is down more than 3% and gold more than 4%.
Municipal Yields and Returns
On the tax-exempt side, the 1-year AAA municipal general obligation benchmark yield at 3.05% is 50 basis points higher than the 10-year at 2.55% and only about 50 basis points below the 30-year yield at 3.56%. So far this month, the 10-year and 30-year yields have risen 30 basis points but the 1-year has increased 77 basis points. Fixed income losses in February have erased much of January’s gains. U.S. Treasuries currently have a 0.64% year-to-date return; investment grade corporates are up 1.60% and high yield corporates +2.20%. Returns on investment grade munis in 2023 are +0.86, while high yield munis are up 1.57% and taxable munis +3.75%. For guidance on boosting your returns and/or income amid these market conditions, please reach out to the HJ Sims Private Wealth Management team or your HJ Sims representative.
For more information on offerings or questions about current market conditions, please contact your HJ Sims representative.