By Gayl Mileszko
Market Commentary
The Not So Grand Re-Opening
The government has been shut down for 43 days but it will re-open this week thanks to eight members of the Senate Democratic Caucus. We will eventually hear how it all came about, but it was most likely orchestrated by the Senate Minority Leader on Sunday with instructions given to a carefully hand-picked group — none up for re-election, all willing to endure some faux clubbing from colleagues, probably in exchange for a few earmarks to come down the road if nothing bad is directly attributed to leadership. So it was that on Monday, by a vote of 60-40, there were just enough aye votes in the upper chamber to get an agreement to fund the government through the holidays, for 79 days to be exact. Something had to give and so it did. The House vote scheduled for Wednesday night was projected to be more of a squeaker, assuming that the 219 Republican members experience no flight delays and fall in line. In the end, no one deserves hero status in this latest textbook example of absurd political brinksmanship. The question is, what comes next? After all the unforgettably harsh accusations hurled at each other these past two months, we rule out a spate of healthy debate and bipartisan goodwill.
Pleas and Please
Since the start of the new federal fiscal year on October first (FFY26), congressional offices have been hit with a steady stream of loud complaints from unpaid federal workers, military families, contractors and consultants as well as the more numerous constituents and voters, including those without food stamps, without farm subsidies, and those tired of canceled and delayed flights going into the biggest air travel season of the year. Many in both chambers – both the House and Senate — have held out with pleas for an extension of pandemic-era health care credit subsidies that the Trump Administration views as a $488 billion, 10-year goldmine for insurers. The pressure clearly grew intense to please, please just agree to an extension of Biden spending levels for long enough to negotiate new FFY26 appropriations bills, hard but necessary work. A reminder for all Americans: the most basic task the Founding Fathers assigned the Congress is to make laws that govern the nation, principally including those which control federal spending and taxation.
No Worries on Wall Street
Financial markets understood that the shutdown would eventually come to an end with status quo funding likely through year end, but plenty was wagered on which parties would cave first and when and for how long. The stock market did not appear to care which side would fold; virtually nothing short of a war declaration can apparently interrupt its AI-fueled rally. Trading went on interrupted; no purchases or sales are settled in food stamps or WIC vouchers. At this writing, the S&P 500 Index has risen 2.4% and the Nasdaq Composite is up 3,6% since non-essential federal employees were sent home. The bond market initially rallied in a brief flight to safety, but experienced some volatility as the shutdown dragged on. The 10-year Treasury note yield went into the new federal fiscal year at 4.15% and currently stands at 4.08%. The 30-year AAA general obligation bond yield has fallen from 4.22% to 4.14%.
Disruptions and Litigation
Quite a few Americans on Main Street have, however, experienced disruptions, including a number of municipal borrowers. For the first time in memory if not history, legal actions were filed as a result of the shutdown and some are still pending or on appeal. These involved efforts to block federal workforce layoffs, make uninterrupted payment of food stamp benefits, and extend deadlines in criminal and civil cases. State and local governments with large federal workforces saw some declines in income and sales tax revenues. Hospitals and colleges experienced delays in the processing of payments due to the staffing furloughs. Some transit and housing authorities awaiting federal grants had to pause projects underway. About 20 Head Start preschool programs fully or partially closed. Multifamily housing matters were mostly handled on an emergency basis, and no new rural housing loans, grants or guarantees were made. Those seeking Medicare data releases experienced delays and 47% of staff at the Centers for Medicare and Medicaid were on furlough until 3,000 were recalled during the last week of October. Many in rural areas were impacted by the 3-week closure of Farm Service Agency county offices.
Municipal Issuance Over $500 Billion So Far This Year: HJ Sims Records Highs
We are heading to a new record in muni bond issuance with more than $500 billion in total reported sales so far in 2025. HJ Sims is pleased to lead the league in underwriting charter and private schools with financings for schools in Florida, Arizona, New Mexico, Utah, California, Louisiana, North Carolina, Idaho, and Texas having a combined par value of $900 million. We are also one of the top two underwriters of senior living and care bonds with more than $1 billion of originations so far this year. Last week, we brought a $45.5 million non-rated South Carolina Jobs-Economic Development Authority issue for Wesley Commons, a 330-unit rental life care plan community expanding in Greenwood. The 2060 final maturity priced with a coupon of 5.625% to yield 5.78% and was sold in $25,000 denominations to accredited investors and qualified institutional buyers. We are huge proponents of these and other tax-exempt bond issues supporting those serving the youngest and oldest in our communities. As the year winds down and you complete your borrowing and portfolio needs, please reach out to your HJ Sims representative for more information on how we can assist you, view our pipeline of financings through year-end, learn about some of our deals in the works for 2026 as well as see our inventory of creditworthy bonds.
What Happens Next After the January 30 CR and 3-Bill “Minibus” Are Enacted?
- Departments and Agencies Are Funded: Under the terms of the Senate bill, the Departments of Housing and Urban Development, Health and Human Services, and Education will be funded at current levels through January 30. The bill also provides full-year funding for the legislative branch, veterans healthcare, military construction projects, and the Agriculture Department and its programs including food stamps, WIC food assistance, and rural housing. As the bill only covers 3 of the 12 full year appropriations bills, it is referred to as a “minibus” rather than the more common “omnibus” measure which provides spending for the entire government and enables members to avoid tough votes on controversial provisions in separate foreign aid, defense, labor, health and education bills.
- Federal Employees Return to Work For Now: Approximately 670,000 employees furloughed during the shutdown are to be reinstated under the Senate bill, and there are to be no further layoffs through January 30. Federal workers, both the furloughed and those 730,000 essential employees required to work without pay, are entitled to back pay. Retroactive payments are to be made as soon as possible, rather than on scheduled pay dates. It will take some time for federal agencies to re-boot and catch up on paperwork, data collection, investigations, and constituent service once the continuing resolution is signed into law. And there is of course a fair chance that there could be another impasse at the end of January if agreement is not reached on discretionary funding for the majority of federal departments and agencies, or if a Senate vote is not scheduled on the expiring COVID-19-era enhanced Obamacare subsidies.
- Bond Yields Are Likely to Fall: Based on a review of the last five shutdowns, Municipal Market Analytics notes that it is rare for the fixed income markets to have an adverse reaction to a re-opening. In fact, tax-exempt as well as taxable bond prices typically increase over the subsequent 1-week and 1-month periods. Please reach out to your HJ Sims representative for offerings that our trading desk finds most attractive and our bankers see as forward pricing views.
- Attention Turns Back to the Fed for Now: During the shutdown, traders made due with economic data from private sector rather than government sources but some worried about “flying blind” for lengthy periods, not wanting to be surprised by unexpectedly weak labor numbers, poor Treasury auctions, or any new jump in inflation ahead of the next Fed meeting. With 28 days to go before the next Open Market Committee policy vote, futures trading currently reflects a 63% probability of a 25 basis point cut with 2 more to follow next April and July, basically the same expectation held at the close of FFY25.
- Markets Look to More of the Usual Market Movers in This Most Unusual Year: Investors are highly attuned to the pending Supreme Court decision on the president’s authority to impose tariffs under the International Emergency Economic Powers Act after arguments were heard on November 5. We monitor the 9 Treasury auctions scheduled for this week, including 10-year and 30-year sales. There are 12 Federal Reserve officials on the speaking circuit, sharing significant views ahead of the next vote. Third quarter earnings are eagerly anticipated for Disney, Cisco, Occidental and Applied Materials. If BLS and Census data reporting resumes next week, we will have a better grasp on housing starts, building permits, and existing home sales. And we start to analyze some of the new White House proposals, for example using tariff revenues to fund $2,000 direct payments to Americans.
Salute to Our Veterans
The municipal bond market features a primary calendar of $9.7 billion this week, and is expected to slow going into the Thanksgiving holiday. We have only about four full weeks of trading, uninterrupted by holidays before year-end. We expect active sessions and are fully staffed to meet the needs of our investing and banking clients. Needless to say, we did, of course, pause on Tuesday to commemorate our nation’s 15.8 million veterans, including the clients, staff, families, and organizations we serve. The entire HJ Sims team – based in Connecticut, Texas, New Jersey, Florida, California, Arizona, Ohio, South Carolina, North Carolina and Utah — salutes all our men and women in uniform along with those who have served us and protected our freedoms in World War II, the wars we fought in Korea, Vietnam, and the Gulf, and our ongoing war against terrorism. Please reach out to your HJ Sims representative to share stories of the sacrifices made and being made by those in your family and community, and let us know how we can help those who need investment guidance. It is our duty and honor to assist you.