by Gayl Mileszko
America once again marks the adoption of its Declaration of Independence from Great Britain on Monday. This holiday will commemorate the 246th anniversary with the traditional fireworks, musical performances, parades, barbecues, and gatherings of family and friends. In Washington, the annual patriotic ceremony features a reading of the 1,458-word pronouncement including the full names of all 56 signers. Red, white and blue flags will fly from sunrise to sunset on buildings, porches and lawns all across the country. The stripes, of course, represent the original 13 Colonies with the red band on top symbolizing hardiness and valor, the white representing purity and innocence. The blue field for the white stars representing each of the 50 states symbolizes vigilance, perseverance and justice.
Blue and Red
Some say that this year’s commemoration is marred by the political polarization of the red and blue states, by several recent court rulings, by the third year of pandemic, by inflation that is driving our cookout food prices up as much as 36%, by slowing economic growth as reflected in the first quarter’s negative GDP and weakening consumer confidence, and by worry over a recession that may already be upon us. There is no doubt that we are facing fear, change and uncertainty. Our founders and the citizens of 1776 did as well. As the acting Archivist of the United States, Debra Steidel Wall — who is responsible for safeguarding the original Declaration along with the Constitution and Bill of Rights — reminds us, “Throughout our history, as a nation united, we have confronted and overcome such threats.” She is just one of many Americans who call for us to “stay united as we strive for a more perfect, historically accurate and inclusive union.”
America’s capital markets are the strongest in the world, but there is nothing perfect about them, certainly not this year. At several points this year, volatility as measured by the Chicago Board Options VIX Index more than doubled from its starting point at 16.60; at 26.95, it is 56% higher at the time of this writing. The major stock indices are down between 14% and 26% since the start of 2022: the Dow at 31,438 has lost 4,900 points, the S&P 500 at 3,900 is down over 18%, the Russell 2000 at 1,771 has dropped 21%, and the Nasdaq at 11,524 has fallen more than 26%. Oil prices, now at $109.57 a barrel, are down from the March highs of $123.70 but are still 46% higher than they were in early January. Gold at $1,825 an ounce is nearly flat but Bitcoin, as a proxy for altcoins and the crypto market, has plummeted almost 70% from its record high.
Black and Blue
Bond markets have been pummeled. The 2-year Treasury yield at 3.12% is a whopping 239 basis points higher than the beginning of the year; the 10-year at 3.19% is up 168 basis points, and the 30-year at 3.31% is 141 basis points higher. This week’s early Treasury auctions for $133 billion of 2-, 5- and 7-year maturities were described as soft. The 10-year Baa rated corporate bond yield at 5.76% is up 256 basis points. On the tax-exempt side, virtually the entire curve is 176 basis points higher: the 2-year AAA general obligation benchmark yield now stands at 1.97%, the 10-year at 2.79%, and the 30-year at 3.25%. Many borrowers are nevertheless still achieving good rates. For example, in the charter school sector, the WHIN Music Community Charter School sold $43.9 million of non-rated bonds through the Build NYC Resource Corporation structured with 2057 term bonds priced at par to yield 6.50%. Santa Fe South Charter Schools had a $18 million non-rated revenue and refunding bond sale through the Oklahoma County Finance Authority that included 30-year term bonds priced with a coupon of 5.625% to yield 5.90%. The Louisiana Public Facilities Authority brought a $14.7 million non-rated deal for Lincoln Preparatory School that had a 40-year maturity priced at 6.50% to yield 6.61%.
Market Movers This Week
NATO is holding a summit in Madrid on the heels of the G7 meeting in Germany. Primary voters in seven states head to the polls. We will get a sneak preview of mutual fund and ETF inflows and outflows on Thursday. In the muni market that we follow so closely, these fund outflows and the high level of daily bids-wanted par from funds have nearly quashed expectations for rallies that normally occur in July, the calendar year’s strongest month. We will see a huge amount of cash hit our accounts on Friday due to muni bond maturities, calls and coupon payments. You can count on us to pick through the large array of offerings to find individual bonds to meet your investment needs and goals, always subject to your guidelines and risk tolerances. HJ Sims is always hunting for and finding value in individual bonds and other products for our investing clients in every market cycle, and we continuously assist our banking clients on timely investments, creative structures, and timing of market entry in every market cycle.
Stars and Stripes in the Market
This week’s $9.7 billion municipal calendar includes a $39 million BB+ rated financing that HJ Sims is bringing for the Army Residence Community, a life plan organization for retired members of the military and senior level federal employees and their spouses, with 710 residents on a 138-acre site featuring 454 independent living apartment and cottages, 78 assisted living units and 91 skilled nursing beds in San Antonio. Bonds are being issued through the New Hope Cultural Education Facilities Finance Corporation. We invite you to contact your HJ Sims representative for more information on this primary offering as well as other attractive credits that we pinpoint and access in the secondary market.
The third quarter of the year begins on Friday, and our professional sales, trading, banking, analytic and operational teams look forward to assisting you with your mid-year reviews and year-end planning. Reach out to us this week or next with your questions. We look forward to a dialogue and remind you that bond markets close early on Friday and, along with stock markets, remain closed all day Monday in observance of Independence Day. In the interim, we wish you and yours a wonderful July 4th holiday with safe travels, happy reunions and conversations filled with appreciation for our nation’s unique history and standard as the beacon of freedom and democracy for our world.
For more information on our municipal offerings or questions about current market conditions, please contact your HJ Sims representative.