Market Commentary: Moonstruck

by Gayl Mileszko


Millions of all ages from many homelands gathered with friends and family to watch the rare celestial spectacle on Monday. The best views amazed as many as 32 million folks who reside in or traveled to 13 states, but scores of others far from the path that led through our heartland from Mexico’s Pacific Coast to Canada’s Newfoundland paused to behold a breathtaking scene. Animals cowered, scientists ran experiments, and many gathered to reflect, harmonize, or pray during the breathtaking phenomenon. Most of our country united for at least a few minutes and WOW did that feel good.

Eclipse Watchers and Elopers

Seniors at Brookdale Remington Park in Lubbock, Texas, many of whom had never seen the moon completely cover the sun’s disk, were awestruck. Three hundred fifty couples in Russellville, Arkansas eloped at the eclipse, exchanging marriage vows minutes before seeing a great “wedding ring” in the sky. Hundreds of traders in Manhattan left their desks in high rise office buildings and gathered to share rooftop views of a sky that turned eerily dark at 3:25 p.m. And students at West Virginia Academy hosted an open house for members of the community to showcase their charter school and study this “cool” astrological event together, something that that their own children will observe a little more than twenty years from now. 

World and Out-of-this-World Perspectives

West Virginia Academy was the state’s first charter school, approved to open in the Fall of 2022. It features an international baccalaureate program taught with a world perspective in mind and offers a college readiness curriculum with lessons and materials said to be “free from any political agendas.” They are using classical instruction in an effort to address challenges and improve outcomes for students, including some of the 6,300 foster children in the state. WVA was one of the 2023 Yass prize winners, national awards given annually to recognize innovation in education.

Charter Schools Shine

At HJ Sims, we are helping to finance truly innovative charter schools located in communities all across the United States. These schools that are supported by parents and communities coming together to fill some of the gaps in public education. We tell the stories of how these schools were formed, how the best of them have grown and succeeded from the outset under dynamic leadership with solid financial management and a focus on the curriculum, the student body, and/or specific teaching models. Our investors respond, recognizing the need for vocational curricula, dual language instruction, home and virtual learning, classical studies, programs specially designed for the hard of hearing, the homeless, the at-risk, dropouts, the artistically or athletically gifted, students with autism, dyslexia, or other learning challenges, and Montessori and other specialized schools for those from pre3K-to grade 12 and beyond. As public schools, charter schools are funded with a combination of state and federal payments based on student enrollment. Please reach out to your HJ Sims representative to discuss these increasingly attractive investment opportunities, some of which are in your own community, as possible additions to your portfolio.

HJ Sims Leading in 2024 Below Investment Grade Charter School Sales

HJ Sims has been active in bringing charter school transactions to market once again this year. We have underwritten or placed the majority of all new non-rated and below investment grade charter school bond issues in 2024, with five financings having an average par value of $19 million. We have several more deals in the pipeline for this month and will keep you posted on the schedule. In the interim, we invite you to reach out to our banking team for more information on our special expertise in this sector and how it may benefit your school. 

Orbits and Curves

As we learned from the news heralding the big event on Monday, the eclipse is quite rare and, long ago, understandably attributed to angry gods and seen as a bad omen. In fact, the Moon’s orbit is tilted at about 5 degrees to Earth’s orbit, and Earth’s orbit around the Sun is also elliptical. So, even though total solar eclipses occur somewhere on Earth every 18 months on average, if you model the geometry you will find that they recur in any given place only once every 360 to 410 years. In recent years, it used to be a pretty rare event to see the Treasury yield curve invert, and extremely rare for part of the municipal yield curve to invert. But at present the height of the Treasury curve is the 3-month yield at 5.42%. Yields have been upside down since July of 2022. The 2-year Treasury at 4.93% is at the high of the year and exceeds that of the 10-year at 4.49%. And the 10-year yield has been below the Fed Funds rate since November 2022. The St. Louis Fed reports that a negative spread between the two — like the current one at 76 basis points — has only occurred seven times in the last 60 years (1968, 1973, 1978, 1990, 2000, 2006 and 2019) and in each case it heralded a recession.

Sunny Days for Borrowers

At this writing, the short end of the municipal bond yield curve is also inverted. This almost never happens – even for very short periods — but has been the case since December of 2022. The one-year benchmark AAA general obligation bond yield at 3.30% exceeds that of the 16-year at 3.23% and stands only 61 basis points from the 30-year yield at 3.81%. Inverted curves initially presented challenges to underwriters and traders, those who bid at Treasury auctions, and economists projecting future borrowing costs, among others. But until the Fed changes its rate policy, borrowers and buyers in the taxable and tax-exempt markets are taking advantage of these anomalies. In the primary municipal market, year-to-date issuance at $99 billion is up 33% from last year: $60 billion of the total constituted new money, $19 billion were refundings, and $19 billion had some combination of both. Flows into municipal bond funds and municipal ETFs totaled $80 million last week according to Lipper, with high yield funds taking in $161 million. High yield corporate bond issuance also totals $99 billion so far in 2024, representing a 115% increase over the first quarter of 2023. Investment grade corporate volume at $560 billion broke all previous records for the quarter, only to be outdone by the $576 billion of net cash raised by the U.S. Treasury.

Full Moon

There is a full slate of potential market movers this week but the big one is the March inflation data out on Wednesday and how it impacts the likelihood of a rate cut in June, or any rate cut at all. There is sure to be a lot of barking at the moon, particularly if it resurrects talk of new rate hikes. JP Morgan Chase’s Jamie Dimon just outlined concerns that interest rates could rise to 8% or more in his annual letter to shareholders. Reassuring words coming through in the release of the FOMC minutes or in remarks made by any of the 8 Fed speakers on the circuit may calm markets until anxiety builds over the coming March retail sales and personal consumption expenditures price index releases. With the UConn and South Carolina victories, the excitement of March Madness is no longer a distraction for traders, so much focus turns to the start of first quarter corporate earnings season, the nine Treasury auctions, and other economic data including the producer price index, inventories and consumer sentiment. Mother Nature plays a role here as well, with a big boost to the economy coming from solar eclipsers, worries of aftershocks impacting the Northeast from the New Jersey earthquake, flooding other and severe weather events in the Southeast. Congress has returned from its Easter recess to address impeachments, foreign aid, and various expiring authorizations. Political junkies await the results of the Alaska primary and Wyoming caucus.

HJ Sims has been a key partner in our relationships with banking and investing clients since 1935, advising, operating, and executing in all market conditions. Do not wait for a blue moon or the next sun shower, but reach out this week for our market insight and recommendations tailored to your needs and goals.