By Gayl Mileszko
Market Commentary
The Hammer Drops
Residents of Knob Noster, Missouri, cheered when they spotted several familiar batwing planes land back at Whiteman Air Force on Sunday afternoon, having successfully completed Operation Midnight Hammer. The pilots, two per plane, were mobbed by fellow members of the 509th Bomb Wing when they emerged after undertaking an unprecedented 37-hour mission and returning safely – and, amazingly, undetected. Whiteman is home to 19 of these massive B-2A Spirit bombers with wingspans of 172 feet — about the size of half a football field — capable of subsonic speeds over 620 mph. As many as seventeen were reportedly part of the largest B-2 operational strike in U.S. history. Eight decoys reportedly headed west, toward Guam. Then the rest, apparently including two spare aircraft, launched at 12:01 a.m. EST Saturday. Seven flew due east 7,085 miles and 18 hours across the Atlantic, each carrying two massive bunker-buster bombs, known as GBU-57A/Bs. The Massive Ordnance Penetrator bombs each weighing 30,000 pounds, engineered to penetrate up to 200 feet of earth before detonating, were dropped on two key underground uranium enrichment plants in Fordow and Nantanz, Iran at 2:10 a.m. Sunday local time, 6:40 p.m. EST Saturday.
Breathtaking
The meticulously planned and extraordinarily secretive, intentionally limited, operation ordered by President Trump, took advantage of the stealth capabilities of these $2 billion bombers along with the precision of submarine-launched BGM-109 Tomahawk land attack cruise missiles, 30 of which struck sites at Natanz and Isfahan. It was a breathtaking show of American force with the goal of eliminating the nuclear bomb-making abilities of an arch-enemy, the world’s top state sponsor of terror, whose supreme leader has vowed death to America for decades.
Preparation and Teamwork
The Midnight Hammer operation took months of preparation and weeks of pre-positioning. It is a practice-makes-perfect lesson for everyone, from business operators to students and athletes. As soccer legend Lionel Messi once said, “I start early and I stay late day after day, year after year. It took me 17 years and 114 days to become an overnight success.” Our nation’s latest unparalleled mission also underscored another lesson: success requires teamwork. More than 125 aircraft including escort and support from F-22 Raptors, F-35 Lightning IIs, F-16 Fighting Falcons, and F-15E Strike Eagles were part of the top-secret attack force, aided by 30 refueling tankers deployed from air bases in Germany, Spain and the Azores.
Bombs Fly, Markets Rally
Last Friday, had markets suspected a massive direct U.S. attack on Iran was in the works, no trader would have expected stocks and bonds to rally on Monday. But rally they did. Even stock market volatility, as measured by the VIX, has dropped and it continues to fall at this writing. Investor sentiment as measured by the CNN “Fear and Greed Index” remained incredible steady in the neutral range for the past week and indicates that the greed emotion is now driving the market. The Dow, S&P 500, Nasdaq, and Russell indices all rose by 1% between the close on Friday and the close on Monday. Gold prices increased by $21 an ounce. The 2-year Treasury yield fell 4 basis points and has since dropped further to 3.82% at this writing. The 10-year yield fell 3 basis points and is now down another 5 basis points to 4.29%. The 30-year at 4.83% is 5 basis points lower than where it closed on Friday.
Sudden and Widespread Perception of De-Escalation
The U.S. action became quickly accepted as limited, one that resulted in eliminating or delaying significantly the threat of nuclear weapons development in Iran. Between the devastation inflicted by Israel and the U.S. bunker-buster action, Iran is now seen as having no serious ability to retaliate, although worries remain about possible cyberattacks and sleeper cell terrorism here in the homeland. But no other nation is coming to the aid of this evil empire and its proxies and there appears to be no real concern about oil price hikes to re-fuel inflation. Despite initial apprehension about the Iranian parliament voting to close the strait of Hormuz, China is believed to have made a call to remind the Islamic Republic of Iran that it is the largest importer of Iranian oil and needs that oil flow to continue. Oil prices are down 8.6% to $64.37 a barrel.
Tracking Bombings and Other News on Social Media
Somehow, quite remarkably, we have grown accustomed to receiving earth-shattering news through social media on our smartphones. The ease with which we learn of ship and troop movements, death and destruction has made us nearly immune to what we read and see in real time video on X or Truth Social. We hardly give a second thought to all the technology and training that goes into a mission like Midnight Hammer, how two pilots manage to stay airborne for up to 44 hours with the help of some rather mind-boggling mid-air refuelings, a cot, toilet, microwave, and coolers for refreshments. But also consider that quite a few investors quickly jumped on their iPhones to place buy orders for the stock or bonds of, among others involved in the success of the operation, Northrup Grumman, the manufacturer of the $2 billion B-2s; Boeing, the builder of the 20 foot-long bunkerbusters; General Dynamics, the ship and submarine contractor; Raytheon, the maker of the Tomahawks; and Lockheed Martin, the manufacturer of the F-35 fighter jets.
Bonds Not Bombs
We in the bond — not the bomb — business prefer to focus on market statistics rather than military stockpiles. But, in order to maintain a proper perspective on risk, we note that there are nine countries in the world with a combined 12,331 nuclear warheads, any of which could cause an estimated 583,160 fatalities. The Federation of American Scientists sees the weapons count as follows: Russia (5,449), U.S (5,277), China (600), France (290), U.K. (225), India (180), Pakistan (170), Israel (90), North Korea (50). We also note from a national risk perspective that we have about 40,000 U.S. service members in harm’s way in the Middle East, stationed on military bases in Qatar, Bahrain, Saudi Arabia, the United Arab Emirates, Jordan, Kuwait, Egypt and Iraq. There are also significant naval assets that we have deployed and being re-directed to the region, and patrolling the Red Sea, Gulf and Eastern Mediterranean. And, on Sunday, our National Terrorism Advisory System warned of a heightened threat environment. The civilized world holds out great hope that the current Israel-Iran ceasefire, however shaky, will hold.
Bunker Busters and Market Movers at the end of 2Q25
So much about nuclear weapons and war is unthinkable. We place great faith in our military and law enforcement to protect us from threats we hear about – and most likely the majority that are never made public. So, we cannot help but place most of our focus only on the most common of day-to-day concerns. For the financial markets, this means the latest corporate earnings reports and forecasts, the weekly economic indicators (this time: the third 1Q25 GDP reading, personal consumption expenditures, home sales, and consumer confidence) what Federal Reserve Chairman Powell tells Congress in his semi-annual testimony before the finance committees, how that differs from what other Fed officials say on the speaking circuit, and the results of Treasury auctions (10 this week). This is the last full week of June. Next Monday marks the end of the second quarter of the year and the runup to the long July 4th weekend. We are only one year from the celebration of our nation’s 250th anniversary.
We Love Our Big Beautiful Municipal Bond Market
This year, our muni market has been a target for many looking to reform tax policy. But we have an incredibly strong base of support from state and local governments as well as the non-profit borrowers that we are privileged to assist in accessing capital: our senior living and care communities, our charter schools and private schools, our rural hospitals and utilities, and so many others that are essential to our cities and hometowns, to or nation as a whole. We appreciate all of those who have rallied in support of municipal bonds and the national infrastructure made possible over more than a century. HJ Sim singles out all those who support the projects that we and others underwrite: the mutual funds, the exchange traded funds, our retail and household accounts, our trusts, family offices, and other buyers – including those overseas who value our credits. At this writing, it appears that the threat to tax-exemption has waned. But not entirely – the Senate is still looking for offsets. There remain risks but tax-exempt equivalent yields are extremely attractive and both borrowers and buyers across the spectrum are taking advantage of this incredible demand, with bond sales headed to all-time records for the current quarter and this year. Futures traders still expect two rate cuts to come this year – in September and December – but muni borrowers are not waiting for a quarter point or less of differential. We at HJ Sims are working with a growing number of nonprofits, for-profits, and private-and-for-profit partnerships moving ahead to take advantage of current conditions.
Lots of Muni Cash Available
Tax-exempt municipal money market funds have $139 billion of funds waiting to get put to work. Liquid municipal exchange traded funds hold $150 billion that could be placed into longer individual holdings. And municipal bond mutual funds with $792 billion of assets under management have seen 9 weeks of inflows. Bondholders have received $58 billion of principal and interest payments in June, all of which is available for re-investment. Next week will see another $41.5 billion. A further $10.7 billion will hit accounts later in July and a huge wave of $52.2 billion will be received in August. We at HJ Sims have a wide array of options for how we can help you put this money to work based on your needs, goals, and risk parameters.
HJ Sims in the Market for LaVerne Elementary Prep Academy
This week, the steady flow of new municipal bond issues continues uninterrupted. HJ Sims is in the market with an $18.3 million Ba1 rated California Public Finance Authority for LaVerne Elementary Prep Academy in Hesperia, California. This is a TK-6 charter school with 504 students and a waitlist of 209 planning to acquire a second campus and add two grades. The municipal market typically follows in the path of Treasuries but tends to lag a bit. And munis are still lagging their taxable counterparts. Tax-exempt yields, as seen in MMD AAA general obligation bond benchmarks, have been flat for three straight days. The 2-year has stood at 2.63% since Friday, the 10-year at 3.30%, and the 30-year at 4.54%. Last Friday, the Riverhead Industrial Development Authority in New York sold $17 million of BBB-minus rated bonds for Riverhead Charter School, structured with 5 term bonds including a 2048 final maturity that priced with a coupon of 5.375% to yield 5.42%. This week’s slate is expected to total $12 billion, led by a $1.5 billion note deal for Los Angeles which, coincidentally, has the largest population of Iranians outside of Iran. The calendar also features a $21.3 Colorado Educational and Cultural Facilities Authority financing for the K-12 Stargate Charter School in Thornton, rated Aa3 with the state’s moral obligation, state intercept, and debt reserve fund programs.
Next Hammer to Drop?
President Trump is at the Hague this week to meet with NATO members who announce their commitments to increased defense spending. New trade deals may soon be announced. New York City just held its Democratic mayoral primary and is creating new headlines. The U.S. Senate is working through its version of the reconciliation bill under pressure from a president on a big roll, citing a string of successes in meeting what his administration views as his November 2024 mandate. The goal is to produce a compromise with the House by July 4 – a feat that may take a miracle — so some goalposts are being moved to September. President Trump has also long positioned himself against our central bank’s monetary policy; the latest Federal Open Market Committee action kept the nation’s benchmark interest rate in the range of 4.25% to 4.50%, elevating the cost of U.S borrowing and our growing debt and deficit.
Perspective
We at HJ Sims survey the local, national and global landscapes in the course of our work during every trading day to help inform our investing and banking clients. Needless to say, we along with all in our industry have been busier than ever this year as we stay on top of regulatory, monetary and fiscal policy, and major intraday, global news. We invite you to contact your HJ Sim representative for information on our latest municipal bond offerings both in the primary and secondary markets, as well as the wider array of products and services that we proudly offer.
Ours is a complicated world. It can be dark and we often lose our appreciation for the sometimes brilliant things we Americans accomplish on our own and in coordination with close allies. Far away from the air, land, and sea troubles on this Earth, the Vera C. Rubin Observatory in Chile, featuring the world’s biggest digital camera, is revealing – hard to believe – millions of new asteroids and 10 million new galaxies, a fraction of the more than 20 billion it is expected to survey during the next 10 years. As we narrow our focus in an effort to digest all the latest in our world’s events, salute our nation’s latest incredible military and peacemaking achievements, and prepare to celebrate in our own ways the forthcoming Independence Day holiday, we invite you to share with your family and colleagues these astonishing images made possible in large part through your tax dollars, through the U.S. National Science Foundation and Department of Energy. Another something huge to take our breath away.
Follow this link to learn more!
