By Gayl Mileszko
Tilt-a-Whirl
Thrill-seekers are flocking to amusement parks across the nation this summer in hopes of a ride experience like no other. The number one theme park in the U.S. is Silver Dollar City in Branson, Missouri. The largest is Walt Disney World Resort in Florida. Six Flags Magic Mountain in California has 20 world-class roller coasters spread out across its 260-acre park and markets itself as the “Thrill Capital of the World.” Cedar Point in Ohio boasts that its GateKeeper Roller Coaster is the scariest; its Steel Vengeance was recently rated as the most popular. Investors far from haunted house and bumper cars, accustomed to more sleepy summer amusements, were taken on an unexpectedly wild ride last week. A huge number of tickets were printed in the sell-off; traders lurched out of their seats, prices spun, a few wheels came off, and algorithmic tracks did loop-the-loops. By Wednesday, the Tilt-a-Whirl ended, but not before investors lined up for the tamer attractions of money markets and exchange traded funds.
Cliffhanger
Last Monday, the Chicago Board Options Volatility Index known as the VIX recorded its biggest intraday jump on record, surging 42 points in less than five hours. To try and explain the panicky phenomenon, market watchers speculated about waning hopes for the artificial intelligence sector, new indicators of a slowing economy, uncertain election outcome forecasts, new turns in the wars in Russia and Gaza, and the and the rapid unwinding of the yen-based carry trade after the Central Bank of Japan suddenly found the nerve to raise rates a tick. More grounded observers saw bid-ask spreads widen in pre-market trading when liquidity was particularly thin, and took relief in a calmer market in futures tied to VIX contracts and data evidencing surging ETF flows.
Roller Coaster Comes to a Stop for Now
The roller coaster ride came to a quick end, but there was psychological as well as financial damage. The Dow closed down 0.6% on the week, the S&P was flat, the Nasdaq dropped 0.2% and the Russell 2000 lost 1.3%. Oil prices climbed 4.5%, gold fell 0.5% and Bitcoin lost 4.4%. The 2-year Treasury yield at 4.05% rose 18 basis points between Monday and Friday. The 10-year at 3.93% added 14 basis points, and the 30-year at 4.21% increased by 11 basis points. The 10-year BAA corporate bond yield closed the week at 5.67%, up 11 basis points. In the tax-exempt sector, the 2-year AAA general obligation yield at 2.64% fell 4 basis points. The 10-year at 2.70% rose 6 basis points, and the 30-year benchmark added 8 basis points.
Riding the Wave
Brave underwriters managed to navigate successfully through what Bank of America strategists described as a “financial rogue wave” last week, bringing more than $15 billion of municipal bond issues and $45 billion of investment grade corporate bonds to market. Against a backdrop of weak 10-year and 30-year Treasury auctions, high grade corporate bond sales nevertheless surpassed $1 trillion year-to-date, and the municipal tally exceeds $318 billion so far in 2024. Munis experienced one of the most volatile six-day periods of the year, and most of the financings that did price last week had strong investment grade ratings. But we saw a range of offerings that included a $67.2 million BBB-minus rated Lancaster Municipal Authority sale for Garden Spot Village which came with a 2049 maturity that priced with a coupon of 5% to yield 4.57%. The Florida Development Finance Corporation had a $20 million BBB+ rated transaction for Saint Andrew’s School of Boca Raton that was structured with 2054 term bonds priced at 5.25% to yield 4.62%. And Williams Baptist University in Walnut Ridge, Arkansas brought a $2.7 million non-rated refunding featuring a 2049 maturity that priced at par to yield 5.25%.
High Yield Munis Merriest in the Bond Merry-Go-Round
Higher yielding municipal bonds remain the darlings of the bond market, continuing to attract more than a few of the investors who register “extreme fear” on the latest CNN Fear and Greed Index gauges. High yield municipal bond funds added $492.5 million of the $671.5 million of net inflows last week and index returns at 6.26% year-to-date exceed the benchmarks for Treasuries, high yield and high grade corporate bonds, leveraged loans, convertible bonds, preferred bonds, mortgage-backed bonds and the Dow Jones Industrial Average. Three new high yield municipal bond exchange traded funds are being rolled out by Rockefeller Asset Management to capitalize on the demand as well as the available cash. On Thursday this week, another $21 billion of principal and $5.3 billion of interest will hit municipal bondholder accounts. And there are already $129 billion of assets sitting in municipal money market funds. We encourage you to contact your HJ Sims representative on how to better deploy these liquid assets.
Gravity
Vertical drop rides like the Sky Screamer at Niagara Falls and the Drop of Doom at Six Flags Great Adventure in New Jersey have been known to turn more than a few hairs gray. But even without these tests of gravity, we know that we in America are graying. Our population is older today than it has ever been and the growth rate given by the Baby Boom generation is unprecedented. There are already 62 million adults aged 65 and older here in the U.S, representing about 17.6% of all residents. This number will increase to 78.3 million by 2040 and 84 million by 2054, when they will account for 23% of the population. Older Americans are healthier overall and living independently for longer. The average 65 year-old is expected to live another 18.9 years, and the number of Americans aged 100 and older is projected to more than quadruple over the next three decades from an estimated 101,000 in 2024 to about 422,000 in 2054 according to Census Bureau projections.
Tilting Toward Seniors
Investors studying our demographic trends know that there are tremendous opportunities in the senior living sector. Most older folks have at least one chronic health condition, and often multiple health issues including heart disease, arthritis, diabetes, and obesity. Quite a few are caring for grandchildren or disabled relatives but there are also more than 37 million younger Americans providing unpaid care to a family member or friend over age 65. In many cases, those being cared for will need, or choose to seek, paid professionals to assist them at home or in other housing and care settings. Market watchers report and rank on the most luxurious and affordable communities catering to this growing population. Major credit rating agencies review and rate their financial viability. The National Investment Center for Seniors Housing & Care (NIC) reports frequently on the trend of increases in independent living, assisted living, memory care, and nursing care occupancy. They also project on the dire shortfall in construction of additional senior housing units needed to meet the growing demand: 500,000 units by 2028 and 775,000 by 2030. In June, they issued a siren call to investors on the “generational opportunity” being presented, noting that “senior housing is poised to be one of the most profitable real estate asset classes”. We encourage providers as well as lenders to contact your HJ Sims representative for more information on the tremendous investment opportunities available right now.