HJ Sims Market Commentary: Pen-flation

by Gayl Mileszko

A lot has been written about the pandemic, this hundred-year global plague. We know there is still a lot more ink to flow. No matter our roles, we have all become voracious readers of studies and speculations that have kept us swinging between the states of hope and heartbreak, confused by directives, irritated by extreme claims and flat assurances, tired of the topic but anxious to have all the latest news as soon as it breaks via our phones, TVs, watches, radios, or papers. It is easy to be angry with all the tests, restrictions and mandates just as it is hard to verbalize many of our darkest thoughts and fears about the origin and perpetuation of this virus. We simultaneously cheer and fear scientists, big manufacturers, and policymakers while grappling with so many unknowns. As we approach the third year of living in pandemic conditions, we cannot help but wonder how many more “COVID holidays” there will be, when the constant stream of PANDEMIC-SIZED HEADLINES will taper, if we will ever be able to function as a community, as a society, as a nation, without pandemic-level federal interventions in response to every happening.

Omicron Variant

On our second COVID-19 Thanksgiving, we were again stressed by travel, focused on family and football, and bloated into food comas — so none of us were in a good position to deal with the unwelcome headline news about Omicron. Word of what could be “the most infectious variant yet” spread rapidly around the world that day, producing concern in some, panic in others. The World Health Organization has since urged “rational measures” but premature alarms sounded over how bad a hit the global recovery might take. Some new travel restrictions were imposed and financial markets had a virulent reaction during the abbreviated trading session on Friday. Most stocks continued to sell off on Monday and Tuesday as well.


For weeks before Omicron was designated by the World Health Organization as a variant of concern, economists and others in the financial and mainstream press were hammering us with reports of grocery store price hikes and empty shelves attributed to supply chain disruptions, half-ruining our Thanksgiving menu planning and shopping. We know it to be the least expensive holiday of the year, but it was framed as the most expensive Thanksgiving ever, as turkey prices were up 24% from last year, dinner rolls +15%, cranberries up 11%, milk +7%, and even peas 6% higher. The average cost per person turned out to be a whopping $5.33, up from $4.69 last year.


After months of insisting that inflation will be short-lived, the newly re-nominated Chair of the Federal Reserve admitted to the Senate Committee on Banking on Tuesday that the central bank got it wrong; that it is time to retire the “transitory” talking point — that factors pushing inflation upward will linger well into next year. Jay Powell, sounding quite hawkish for the first time in three years, suggested that a faster wind-down of bond purchases may be in order. His unexpected remarks lit up trading floors across the country. On top of the uncertainty brought about by the new virus strain, market makers now had to factor in rate hikes starting sooner than the consensus expectations for July 2022. Some in the financial press fueled the angst while others threw cold water on the prospect of Fed-led increases in borrowing costs coming anytime soon. The economy appears to be booming but the full-time pundits are on bubble watch.


Primarily as a result of the new round of virus panic, but magnified by this sudden turnabout by the Fed leader on the last trading day of the month, volatility as measured by the Chicago Board Options Exchange Volatility Index (calculated using the midpoint of real-time S&P 500 option bid/ask quotes) rose 67% in November. The Dow at 34,483 lost 3.7%. The S&P 500 at 4,567 closed down 0.8% and the Russell 2000 at 2,198 fell 4.3%. The Nasdaq at 15,537 finished up slightly by 39 points but was 520 points off its intra-month high. Oil prices fell 20% to $66.81 a barrel, gold at $1,774 fell $9 an ounce while silver prices at $22.77 were off by nearly 5%. Bitcoin at $57,418 dropped 8.3% in value. Despite another month of strong earnings reports, corporate bond yields rose across the board. Treasury and municipal bonds, frequent investment havens, rallied as stocks fell. The 10-year government yield at 1.45% strengthened by 10 basis points in November, and the 30-year yield at 1.79% fell 14 basis points. Triple-A muni benchmark yields fell even more, propelled by favorable technicals. Mutual funds and exchange traded funds took in $5.67 billion of new money, marking 38 straight weeks of net positive inflows and bringing total assets under management over $1 trillion for the first time. Bondholders received $41.8 billion of principal and interest payments and actively searched for reinvestment opportunities but only $33.8 billion of new and refunding bonds came to market for sale. By the close on Tuesday, the top rated 10-year muni yield at 1.03% was 18 basis points lower than where it began the month, and the 30-year yield at 1.48% had dropped 21 basis points.

Senior Living Projects in the News

HJ Sims took recent advantage of extremely favorable market conditions to bring two senior living financings to market. We sold a $51.3 million BBB-minus rated revenue refunding for Good Shepherd Village at Endwell. Bonds were issued through the Local Development Corporation of Broome County, New York and were structured with a final maturity in 2047 priced with a coupon of 4.00% to yield 2.50%. In addition, we underwrote a $32.7 million revenue and refunding issue for BBB rated Plantation Village in Wilmington, North Carolina. The 2.55% maximum yield bonds in 2052 were priced with a 4.00% coupon and issued through the North Carolina Medical Care Commission. Among other life plan community financings on the calendar, the State of Ohio sold $44.9 million of revenue bonds for A rated Otterbein Homes with a 2039 maturity for forward settlement in April of 2023 that priced at 4.00% to yield 2.92%.

Recent Higher Yielding Municipal Deals in the Market

Among higher yielding deals, the Wisconsin Public Finance Authority (PFA) recently brought a $91.9 million Ba1 rated University of Hawaii student housing bond issue that had a 40 year term bond priced at 4.00% to yield 3.45%, and a $28 million BB rated refunding for Methodist University in Fayetteville, North Carolina with a 2034 maturity priced at 4.00% to yield 2.58% Hope Christian Schools had a $38.2 million of non-rated revenue bonds issued through the Wisconsin Health and Educational Facilities Authority including 2056 term bonds priced at 4.00% to yield 3.39%. Seven Hills Foundation sold $30.2 million of BBB-minus rated bonds via the Massachusetts Development Finance Agency structured with 30-year term bonds priced at par to yield 3.00%. In the charter school sector, there were nine deals in the past two weeks. The California School Finance Authority issued $26.4 million of nonrated bonds for Ivy Academia structured with a 40-year maturity that priced at 4.00% to yield 3.50% and $6.8 million of BB+ rated bonds for Bright Star Schools that had a similar maturity and coupon priced to yield 2.69%. The Utah Charter School Finance Authority sold $25.9 million of non-rated bonds including 2061 term bonds priced at 4.00% to yield 3.90% for Beehive Science and Technology Academy. The PFA had an $18.2 million non-rated financing for College Achieve Central with a 2056 maturity priced at 5.00% to yield 3.56%. The Allegheny County Industrial Development Authority sold $12.5 million of BB+ rated revenue bonds for Urban Academy of Greater Pittsburgh featuring 30-year term bonds priced with a 4.00% coupon to yield 3.11%. The South Carolina Jobs-Economic Development Authority had an $11.5 million non-rated deal for Virtues Academy with a 2056 maturity priced at 5.00% to yield 4.57%. Florida’s Capital Trust Agency brought a $6.9 million non-rated transaction for News Springs Schools due in 35 years priced at par to yield 4.75% and a $4 million non-rated deal for Imagine School at North Manatee that had a 2056 term bond with a 5.00% coupon yielding 4.05%. And the Michigan Finance Authority issued $5.7 million of BB+ rated bonds for Holly Academy with 30-year term bonds priced at 4.00% to yield 3.54%

This Week’s Municipal Calendar

Market watchers expect a slate with as much as $9.6 billion of combined par. There is one financing coming with a corporate CUSIP and more than 20 taxable refundings are scheduled. There are five more non-rated charter schools in the market along with higher education financings for Louisiana State University, Springfield College, Washington & Lee, Pepperdine, Duquesne, McNeese State, and Central Oregon Community College. Six social bond issues are planned along with four green bond and two sustainability bond deals. Forward settlements are becoming more common and there are at least three expected this week. Senior living deals include a $138.9 million non-rated Colorado Health Facilities Authority financing for Aberdeen Ridge, and a $19.6 million non-rated affordable assisted living financing for Green Oaks of Valparaiso, Indiana.

Current Market Movers

The Washington press repeatedly reminds us that the federal government runs out of money on Friday, and that only about two weeks remain before we hit the debt limit again. We are tuned into live coverage of the Treasury Secretary and Fed Chair testifying before House and Senate committees, and daily economic data releases focused on housing, consumer confidence, manufacturing and jobs. The wire services and foreign press keep us instantly updated on the latest tensions between China and Taiwan, the Russian military buildup around Ukraine, and the OPEC+ meeting scheduled for Thursday.

We are entering the last month of the year with only about 15 more active trading days remaining. Some investors are looking to take advantage of tax swap opportunities while trading desks are fully staffed, others continue to focus on maximizing yield and income to keep pace with rampant inflation. This is a great time to contact your HJ Sims representative to perform a year-end review, examine higher yielding municipal and corporate bonds and preferred stock offerings, and discuss possible hedging strategies. Many investors are still weighted with surplus cash from bond calls, maturities and interest payments earlier this year; another $37.5 billion of principal and interest was returned to municipal bondholders on Wednesday. Our sales, trading, analytic, and banking teams have helped our clients calmly navigate through decades of market cycles and screaming headlines since 1935.

For more information on the municipal bond market, as well as on help inflating your portfolio, please contact your HJ Sims representative.

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