By Gayl Mileszko
Market Commentary
The Art of the Spiel
Peace talks are underway in many corners of the world while missiles fly. Proposals are floated, counterproposals are exchanged, one party announces that an agreement is near, the other party refutes the claim. It is hard – no, virtually impossible — to be a negotiator in situations where any concessions are viewed as a sign of weakness, where there is absolutely no trust between the sides, where at least one party has never been known for good faith dealings, where the expectation is that any agreement will sooner or later be breached, and where there is no enforcement authority other than the moral code of civilized nations. At present, that code is apparently being reworked. The U.S. has attempted to negotiate an end to the Russia-Ukraine war, citing “meaningful progress” — until talks last broke down last month in Geneva. Diplomats from Pakistan, Egypt and Turkey are trying to mediate the U.S.-Irael/Iran conflict, now in its fourth week. “Significant progress” was reported — until that spiel no longer reflected reality. Markets remain skeptical — but hopeful — for successful peace talks this week.
Pitches
Persuasive pitches, long or short, often rehearsed and designed to impress, are tools used not only by presidents, ambassadors, and legislators but by salesmen, lawyers, doctors, teachers, traders, coaches, counselors, parents, and most everyone else. Going back to ancient times, there have been countless pitches for peace in the Middle East to spare the lives of soldiers and innocents, redirect funds to the needy, and resume fair trade to bolster national as well as regional and local economies. But as long as there are two people, two states, two nations involved, there will always be disputes about borders, trade, alliances, and spending priorities. Here at home, we have more than our fair share of scrappy disputes. In Washington, there is now a dizzying stream of spiels coming in the form of tweets or posts from the Executive Branch, House, Senate, judicial, corporate, lobbyist, and other market-moving sources.
Trash Talk
The debate on funding and instructions for the Department of Homeland Security has dragged on since February 14. A new Secretary was just confirmed, and airport leaders and passengers stuck in long security lines seek an urgent resolution to pay for TSA agents. There are also issues over the President’s war powers, voting procedures, cryptocurrency and prediction market regulation, farm aid, and affordable housing. Some of the hearings, votes, orders, and headlines are intended to distract from other, more vexing issues; others just remind us of the trash talk we hear on a March Madness basketball court or, starting this week, on the baseball field. The ones that rise to the top of voter concerns may well get addressed in a second reconciliation bill before the midterm elections. However, it is more likely that a $200 billion Iran War supplemental appropriations bill will be the only major vehicle to move forward before November to address the most urgent and contentious of these matters under the umbrella of supporting our troops.
Song and Dance
The Federal Open Market Committee met last week and the data dependency song and dance from the Chairman was pretty much the same as it has been for months. But for the first time in a long while, the Fed has not been the center of attention for the financial markets. Futures traders are not looking to see any rate cuts until September of 2027, so markets are realigning, correcting a course long assumed, and there are some serious bets being made that a rate hike will come before any type of cut. Fingers point to oil-fueled inflation: this month, Brent prices have ranged between $77 and $112, rising and falling like the tides in the Strait of Hormuz. In the meantime, Iran, airport, and AI concerns are top of mind. Traders recognize that Jay Powell is being replaced as Chair, but no confirmation hearings have been scheduled for the President’s nominee. It was somewhat surprising to learn that Mr. Powell plans to stay on as chairman pro tem until a successor is named; some assumed that central bank rules dictated that the Vice Chair would take on the temporary role. In any event, nothing happened last Wednesday, no rates were changed, and none are likely to change until a Powell successor is seated, and perhaps not for quite a long time after that. The latest Fed “Dot Plot” still shows that a majority assume one 25 basis point cut in the Fed Funds rate before year end. Fed economists also projected a slightly higher inflation rate at 2.7% this year, and an unemployment rate in the range of 4.4%, but nothing about that was truly alarming or reassuring to markets.
TACO Time
Almost all major stock, bond and commodity index returns are in the red this year. There was a big rally after President Trump announced on Monday that he was delaying the military strikes on Iranian power plants and energy infrastructure that he threatened over the weekend. Some trading in stocks have jumped on a “TACO” trade that assumes “Trump Always Chickens Out” on policies or announcements that eventually get delayed, reduced, or reversed. But, even well into the President’s second term, some investors have clearly not yet adjusted to the President’s negotiating style. We will soon see if the Wall Street trading strategy proves a winner: the clock is ticking on the 5-day delay to allow for talks and the re-opening of the Strait before U.S. attacks on Iranian power plants could begin.
Market Chatter
The President has claimed that the war has been won, that Iran has agreed to never have or develop a nuclear weapon. But no white flag has been raised and a thousand elite paratroopers from the 82nd Infantry Division are now being deployed as part of a brigade combat team from North Carolina to the Middle East. A two-week Congressional recess is expected to start on Friday with homeland security issues unresolved. The bond market looks across the horizon, taps its Washington sources, keeps its ears to the Main Street ground, and reacts to cues in mantras coming from U.S. and foreign officials. This week’s $69 billion 2-year Treasury auction met with poor demand, but there are 9 others scheduled. We will hear from 9 Fed speakers out on the circuit and parse the latest economic data; productivity, construction spending and consumer sentiment numbers are being released. Most market eyes are on Brent oil prices which, at this writing, are slightly below $100. While hopeful that the Strait of Hormuz will soon re-open, there is plenty of investor speculation about how many months it would take for $140 oil to bring on a recession. In the meantime, life and business move on. Underwriters, traders, and borrowers are taking advantage of market conditions which include trillions of cash available to deploy, attractive bond yields, intriguing calendars, and solid demand for new paper.
HJ Sims In the Market
This week, HJ Sims is bringing a $164 million non-rated deal for The Marisol, a new 214-unit rental assisted living and memory care community to be constructed on 6.8 acres of land in Huntington Beach, California. The Borrower, a wholly owned subsidiary of The Bluhm Family Foundation, targets May of 2028 for the grand opening. Our deal is featured in a muni slate likely exceeding $15 billion in a sector seeing steady demand from institutions as well as individuals, directly and through separately managed accounts. Among other high yield transactions, we expect a $75.2 million BB+ rated Public Finance Authority sale for Triad Educational Services, a $23.8 million non-rated Arkansas Development Finance Authority deal for Providence Academy, and a $163 million non-rated National Finance Authority financing for Forestar Group’s Houston Projects. In the investment grade space, there is a $40.7 million BBB-minus rated Build NYC Corporation issue for South Bronx Classical Charter School and a $60.2 million A-minus rated Illinois Finance Authority sale for Presbyterian Living.
Charter and Private School Sales Talk
Spring has finally sprung into the charter school financing world. After a slow January and February, seven deals have come to market in March so far, bringing the year-to-date total par to $376 million. Last week, the California School Finance Authority brought $21 million of BB+ rated revenue bonds for Orange Springs Obligated Group, featuring a 2061 final maturity priced with a coupon of 6.00% to yield 6.07%. The Florida Local Government Finance Commission issued $15 million of BB+ rated bonds due in 2061 for Cornerstone Charter Academy, priced with a 5.875% coupon to yield 6.03%. The Idaho Housing and Finance Association brought a $14.7 million non-rated deal for Hayden Canyon Charter School structured with 2061 term bonds priced at par with a 6% coupon. The Missouri Health and Educational Facilities Authority came with a $44.4 million BB-minus rated transaction for Brookside Charter School structured with 2056 term bonds priced with a coupon of 6.50% to yield 6.625%. In the private school sector, the California Enterprise Development Authority brought a $62.2 million BBB+ rated transaction for Milken Community School with a 2033 maturity priced at 5.00% to yield 3.33%.
Senior Living Financing Update
The first senior living financings of the month came last week, bringing the 2026 total par issued at this writing to $1.24 billion. Mennonite Village had a $86.2 million BBB rated financing that came through the Albany Oregon Hospital Facility Authority structured with 2061 term bonds that priced with a 5.375% coupon to yield 5.45%. The California Statewide Communities Development Authority issued $101.7 million of AA-minus insured bonds for Odd Fellows Home of California that had a 2056 final maturity priced at 5.00% to yield 4.66%. Episcopal Homes Obligated Group brought a $15.4 million non-rated financing through the Saint Paul Housing and Redevelopment Authority that included a final maturity in 2059 priced at 5.875% to yield 6.00%. And the Wisconsin Health and Educational Facilities Authority issued $89.6 million of BB+ rated revenue bonds for Benevolent Corporation Cedar Community that featured a 2061 term bond priced with a 5.50% coupon to yield 5.62%.
Current Yields
Both Treasury and municipal yields are higher on the month and the year. The 2-year Treasury yield at 3.88% is up 51 basis points this month. The 10-year benchmark is 42 basis points higher. And the 30-year yield has risen by 31 basis points. The 2-year AAA municipal general obligation bond yield stands at 2.41%, up 38 basis points in March. The 10-year muni yield is 62 basis points higher, and the 30-year muni benchmark yield has risen by 35 basis points. As of last Friday, high yield munis posted one of the highest index returns in fixed income at +0.73%, besting the Treasury index at negative 0.47%, high yield corporate bonds at negative 0.84%, and preferred stock at negative 0.84%. As the volatile month of March, and first quarter of the year, come to a close, reach out to your HJ Sims representative to continue a dialogue on how to best meet your goals.