Municipal bonds advanced in price again last week on the strength of extraordinary cash balances and an absence of sufficient supply. Yields fell to their lowest point in 70 years. Looking for places to reinvest the $22 billion from bond redemptions and maturities on August 1, 2020, investors added another $1.4 billion to tax-exempt mutual bond funds last week and $229 million to muni ETFs. The modest new issue calendar of $8.1 billion was quickly absorbed by buyers who are waiting impatiently in line for more. The State of Hawaii brought a $995 million AA+ rated taxable general obligation deal with a maximum yield of 2.293% in 2040. Phoenix Children’s Hospital had a $245 million A1-rated financing with a final term maturity in 2050 yielding 2.12%. In the secondary market, MMA reported on the sticker shock, citing 5% San Francisco general obligation bonds due in 2025 traded at yields as low as 0.07%. In the high yield sector, the Academy of Advanced Learning charter school on Aurora, Colorado came to market with an $8.5 million BB rated transaction that priced at par to yield 4.375% in 2027. The Bond Buyer Municipal Bond Index (based on 40 long-term bond prices) fell two basis points to 3.52% from the week before. The 20-bond GO Index (20-year general obligation yields) dropped seven basis points to 2.02%. The 11-bond GO Index (higher grade 11-year GOs) declined to 1.55%. The Revenue Bond Index decreased seven basis points to 2.44%.
Munis are not the only products in great demand. Initial public offerings are on track to hit highs not seen since the 2000 tech boom. Equities, as defined by the Dow Industrial, gained slightly more than a thousand points last week to close at 27,433. Gold prices hit an all-time high last week with spot prices climbing as high as $2,070 an ounce. U.S. corporate high yield bond fund inflows totaled $4.39 billion last week and the primary market saw $21 billion of new high yield bonds issued; the year-to-date volume now totals $260 billion. The average yield on investment grade corporate bonds at 1.82% is at an all-time low. There is also an unquenchable thirst for U.S. Treasuries where new issue supply is much heavier and there is a worldwide hunt for yield as the level of negative yielding debt exceeds $14 trillion. This is indeed fortunate as the Treasury plans to sell a record $112 billion in notes and bonds in this week’s refunding auctions. The three-month Treasury finished last week at a 0.09% yield, the 10-year Treasury at 0.56% and the 30-year Treasury at 1.22%
All of this remains hard to reconcile in the context of quarterly U.S. earnings reports and economic data which, while above expectations, are nevertheless ghastly; rising coronavirus counts that terrify teachers, troopers and tight ends; the looting and riots damaging so many of America’s great cities; trade combat, more often described as “tensions”, with China; pollsters paid to support divisive narratives; fall election lineups featuring consequential face-offs; and inscrutable political strategies holding up the next national fiscal aid package, just to name a few. This is our status quo through Labor Day — and perhaps until November 3.
We continue to focus on the positives but look under all the proverbial hoods and kick all the tires in our daily analytic, surveillance, and trading work. We encourage you to contact your HJ Sims advisor to review the credit fundamentals in your portfolio, as well as in new offerings we see every day that may be suited to your risk profile and worthy of your investment.