By Gayl Mileszko
Market Commentary
Standing By
With disapproving eyes on the nation’s capital as we go into the second week of shutdowns, Main Streeters wonder if one day — someday — our elected officials in Washington will ever be able to work together in good faith to fix our real problems. Wall Street, in the meantime, is mostly shrugging off the dramatic goings-on 250 miles to the south. A government shutdown, accompanied by bitter accusatory words and stubborn lines in the sand, is a fairly common occurrence now, one that can be seen coming months in advance like the next debt limit standoff. The only question is how long it will last. In the end, it is the financial markets that will signal with high level phone calls and broad selloffs that they have had enough, providing the pressure needed for the House, Senate, and White House to resolve their differences. Prediction markets are taking wagers on where this one will fall in the record books. At this writing, the big money says we will not see a re-opening until October 15 at the earliest. Some analysts say that this stalemate could go on through mid-November without impacting our economy. But we see cracks appearing already. More are to be expected when the first paychecks are missed, the next big grant funds are pulled, nutrition aid money runs dry, or if furloughed workers are informed that there will be no back pay or that some of their agencies are to be permanently closed.
Amendments
Most Americans, including the huge and reliable voter base of Medicare and Social Security recipients, are so far unaffected and, in the day-to-day struggle, largely unaware of this latest manufactured crisis. But some here and abroad look at this gridlock and wonder if our system of checks and balances needs to be tweaked or perhaps even tossed. Smithsonian Magazine recently published a feature on twelve failed constitutional amendments that, if adopted, would clearly have reshaped our nation’s history. Quite a few of these old proposals still resonate today, and may well be resurrected. In 1911, one amendment was to eliminate the Senate, “an obstructive and useless body, a menace to the liberties of the people.” There have also been seven attempts to abolish the “superfluous” vice presidency; several efforts have been made to actually try and add one or two more VP offices. Around the time of the Civil War, there were several attempts to replace the office of the president with a three-person executive council. Before that, a senator tried to round up support for having the next presidents get selected by lot from among the ranks of its members facing expiring 3-year term limits. The Supreme Court, whose 2026 term begins this week, was a target back in 1867 when it was accused of overstepping its authority and threatened with an amendment for an even higher court with power to review and nullify its decisions. Other unsuccessful proposals would have required that declarations of war be put to a popular vote; placed a $1 million cap on the personal wealth of every American; ended term limits for presidents; abolished the electoral college; and changed the country’s name to the more simple “America.”
Waiting for Good/Godot Data
Of the 2,055 employees at the Bureau of Labor Statistics, there is only one essential federal employee working full-time in the office during this shutdown. There has been much controversy of late over the accuracy of BLS data. The President questioned the credibility of the nonfarm payroll numbers on August 1 that reported only 73,000 of jobs added and made two months of downward revisions totaling 258,000. He fired the BLS commissioner that day, nominated a replacement, and then withdrew that name in September in the face of opposition. An acting commissioner, the nation’s “Statistics Official”, leads the agency for now, but there are no operations to oversee. This would be the perfect time to upgrade systems needed to restore confidence in the integrity, objectivity, and impartiality of data, but alas there is no one to do this. Many businesses, agencies, employers, and academics around the world have come to rely upon this data to assess economic conditions and guide investment strategies. The BLS jobs data was not released as planned on the first Friday of the month, but the world did not stop turning. Alternative sources are being tapped: ADP, Homebase, Paychex, Indeed, the Chicago Fed, and the nonprofit Conference Board.
Rallies and Pauses
Since the shutdown began, gold prices have shattered records, currently trading at $4,038 an ounce, up from $2,624 at the start of the year. Bitcoin prices are also up, currently priced at $153,651. The Nasdaq, the Dow, the S&P 500, and the Russell have all rallied. The 2-year Treasury yield at 3.56%, the 10-year at 4.09% and the 30-year at 4.69% all reflect higher prices. The 2-year AAA municipal general obligation benchmark yield at 2.32%, the 10-year at 2.91% and the 30-year at 4.21% are basically unchanged. Some investors paused to assess the risks of the government shutdown and that quieted the high yield corporate bond market; so far this month, only $3.75 billion of deals have been priced. Investment grade issuance at $14.8 billion has slowed ahead of third quarter earnings releases but September was a blockbuster, with 152 deals and $215 billion sold; year-to-date sales at $1.3 trillion are record-setting, driven by refinancing needs, solid fundamentals and demand, and favorable market conditions.
HJ Sims Finances Bond Issue for the Academies of Math & Science
HJ Sims was in the market with an $18.4 million BB+ rated Arizona Industrial Development Authority for 10 Academies of Math & Science schools in metro-Phoenix and Tucson. We structured the financing with a 5-year optional call date, a 10-year mandatory put, and a final maturity in 2060 priced at par to yield 4.875%. We were also a co-manager on an $89.4 million PSF-guaranteed Clifton Higher Education Finance Corporation transaction for YES Prep Public Schools in Texas that included an Aaa rated 2055 term bond priced at 4.625% to yield 4.88%. In the senior living sector, Channing House sold $36.1 million of AA-minus rated taxable California mortgage insured bonds that had a 2055 maturity priced at 6.15% to yield 5.43%. Presbyterian Retirement Village of Rapid City/Westhills Village Retirement Community in South Dakota came with a $41.5 million A+ rated deal featuring a 30-year term bond priced at 5.00% to yield 5.25%. In the private school world, Crystal Springs Uplands School in Hillsborough, California sold $24.6 million of A rated bonds structured with a 2040 final maturity priced with a 4.00% coupon to yield 4.16%.
Senior Living and Charter School Financings in September
September was an active month for senior living, charter school finance. There were 15 senior living deals in total with combined par value of $876 million for borrowers in Colorado, Minnesota, Ohio, Arizona, Florida, Washington, Iowa, North Carolina, Maryland and South Dakota. On average, bonds had a 26-year average maturity and priced at a discount with a coupon of 6.138%. Twelve of these deals were non-rated. There were also 10 charter schools with combined par of $289 million issued for borrowers in California, New Mexico, Colorado, Hawaii, Florida, Georgia, Utah and Texas. On average, these bonds had a 32-year average maturity priced at a discount with a coupon of 6.477%. Seventy percent were non-rated, including our $31.4 million financing for Explore Rio Rancho in New Mexico, and 20% were below investment grade. For more details, please contact your HJ Sims representative.
The Broad Appeal of Tax-Exempts
Municipal bond issuance so far in 2025 exceeds $439.5 billion, up from $386.5 billion at this time last year. September saw $48.3 billion hit the market. Last week saw $10.6 billion of volume and the slate for this first full week of October totals $14.2 billion, including seven senior living deals, one charter school transaction and a student housing financing. Mutual funds have taken in a total of $18.7 billion this year, with high yield funds seeing inflows of $9.3 billion, and assets under management now total $807 billion. One new muni ETF launched last week, bringing the total number to 135 with $165 billion of assets under management. Tax-exempt money market fund assets now stand at $139.3 billion. Muni returns are positive on the year, with taxable munis outperforming Treasuries, and tax-exempts in the 3-to-7 maturity range favored by retail for most of this year leading the pack. Trading volume these past few weeks has been well above the 52-week average. $38.3 billion of principal and interest will hit bondholder accounts to help fuel reinvestment.
FedWatch and Other Market Movers
This week as we stand by, awaiting the moment when Washington partisans morph into American patriots and get everyone back to work. We ponder the direction of rates and the action likely to be taken in 20 days by the Federal Reserve, which is still open for business during the shutdown due to the fact that it is not funded by Congressional appropriations. Futures traders are counting on quarter point rate cuts in October and December, then next March and July. Among the few data releases from non-governmental sources this week are consumer credit, mortgage applications, and University of Michigan consumer surveys. There are nine Treasury auctions, including a 30-year sale planned for Thursday. We will tune in to the speeches being made by all – count them — nineteen Fed officials at various events, including Chair Powell’s remarks to a community banking research conference at the St. Louis Fed on Thursday.
Active Aging Week and Columbus Day
We salute all the sponsors and participants in Active Aging Week events here and around the world who are helping us to place a new focus on emotional, physical, intellectual, professional and vocational, social, spiritual and environmental wellness. We note that, next Monday, most government offices, schools, banks, and post offices will be closed in observance of Columbus Day. The bond markets will be closed but the stock market is open, as are most retailers and businesses, including HJ Sims. Please feel free to reach out to your HJ Sims representative to discuss current market conditions and review your financing and investment plans for this final quarter of the year.