HJ Sims Market Commentary: Seasons of Change

by Gayl Mileszko

Third quarter corporate earnings reporting season began in earnest last week and stock prices rose as investor alarm over rising inflation, supply disruptions, and waning consumer sentiment notched down a bit with strong bottom line results and positive forward guidance. The release of the Federal Open Market Committee minutes helped confirm market expectations for a slowdown of Fed bond purchases to begin next month, and for a 25-basis point hike in rates next September. The VIX volatility index fell 13% as the Dow and S&P 500 and Russell 2000 climbed more than 1.5%, and the Nasdaq rose over 2%. Oil prices jumped another 3.7% to $82.28 per barrel, silver gained nearly 3%, gold inched up to $1,767 an ounce, and Bitcoin jumped 13% to $61,432. Bonds markets remained steady. In the new issue market, high yield corporate offerings totaled $8.3 billion, bringing month-to-date totals to $16.9 billion. More than $14.5 billion of investment grade corporate bonds also priced, boosting October sales to $42 billion. The municipal slate exceeded $10 billion. In the senior living sector, Ohio Living Communities brought a $40.1 million BBB rated refunding structured with 2040 term bonds that priced at 4.00% to yield 2.91% in 2040, and Wake Robin had an $8.4 million issue with 2033 term bonds priced at 4.00% to yield 2.79% for settlement next January 31.

HJ Sims in the Market This Week with the $263 million Searstone Expansion Financing

The municipal calendar this week is excepted to run as high as $11.8 billion and HJ Sims is in the market with a $263 million non-rated expansion financing for Searstone Retirement Community in Cary, North Carolina. Please contact your HJ Sims representative for all the offering details. Among other non-rated transactions are a $250 million California Earthquake Authority issue, a $184 million Louisiana financing for CommCare Corporation’s skilled nursing operations, a $133 million deal for the new Celina Regional Medical Center in Texas, and a $75 million Utah Military Installation Development Authority Golf and Equestrian Center issue. There are about 29 taxable deals including two with corporate CUSIPs, and three with forward delivery dates as far out as January of 2023. The number of ESG-labeled financings continues to grow; this week alone we should see six green bond financings, two sustainability issues, and four financings designated as social bonds. Technical conditions are still highly favorable for municipal bonds with net supply expected to be negative $5 billion over the next 30 days, but turning positive through year-end. That would be expected to produce some higher rates and wider spreads.

Municipal Market Weekly Recap

In the secondary market last week, $2.77 billion of bonds were offered, well above the year’s average, and $37.7 billion of municipal bonds traded. The 2-year Treasury yield rose 8 basis points to 0.39% on the week, while the 10-year fell 4 basis points to 1.57% and the 30-year dropped 12 basis points to 2.04% on the strength of solid auctions. The 10-year Baa corporate bond yield notched down 1 basis point to 3.18%. Municipals were basically flat with the 2-year AAA general obligation benchmark yield closing last Friday at 0.18%, the 10-year at 1.17%, and the 30-year at 1.68%. The 10-year municipal-to-UST ratio ended at 74% and the 30-year at 82%, according to Refinitiv MMD. Flows into municipal bond mutual funds have been net positive for 32 weeks, but there are signs of slowing and outlier outflows in some categories. Muni funds took in $461 million last week, but high yield funds only added $45 million. Taxable bond funds took in a net of $1.7 billion, but high yield corporate funds lost $1.8 billion. All the talk about the Federal Reserve starting to slow its corporate and mortgage-backed bond purchases has led to some tapering of demand for taxable and tax-exempt products. Domestic equity funds had $2.7 billion of withdrawals and money market funds saw $5.6 billion of outflows.

Market Movers

Markets have a close eye on Washington once again, as the House and Senate are back in session and taking a close look at the latest threat from China in the form of a hypersonic missile that reportedly circled the globe. There is still no top-line deal on the big reconciliation package, no visible movement on infrastructure or on the final government funding package for the fiscal year that began on October 1. The House is only scheduled to be in session for 15 legislative days between now and when it leaves for Thanksgiving. There are only 19 legislative days until government funding runs out on December 3. The $480 billion increase in the debt limit has given a reprieve that may last through December but further action will clearly be needed before the Christmas recess. This week’s economic data is heavy on housing and manufacturing.

We encourage you to reach out to your HJ Sims representative for guidance in reviewing your portfolio.

Exclusive Opportunities For Our Clients