Market Commentary: Unforgettable

by Gayl Mileszko

Many presidential election years are unforgettable: when candidates are “firsts”, when there is a true upset, when it takes weeks or months for voters to know the outcome. 2020 was already guaranteed an indelible spot in our memory banks. It will be unforgettable – but not in the sweet Nat King Cole way. It began with an impeachment, then came the pandemic, the polemics, the huge number of Democratic primary contenders, the Federal Reserve Bank interventions, the record levels of federal and campaign spending, the protests and riots and talk of police defunding, the debate over social media’s effort at content moderation, the postponement of the Olympics, the chasm over the third Supreme Court appointment. It has been a nasty, brutish year and has not always revealed America at its best. And 2020 is not over yet. At this writing, all the election year winners have not yet been declared but we know that, no matter what, the results will upset about half of the American populus. Financial markets, heads of state, and cable news anchors may take some time to adjust to the situation. Fortunately, this unforgettable year is almost behind us. But there are still 60 days until the new Congress is sworn in and 76 days until the inaugural ball. The one constant for us is the Fed and its monetary policy, and that is elevating our markets.

In the week leading into Election Day 2016, the Chicago Board Options Exchange Volatility Index (VIX), a measure of stock market anxiety that is often called the fear gauge, rose 40%. This past week, the gauge has only risen from 32.46 to 35.08. On Election Day in 2012, the VIX stood at 17.58, and in 2008 it was at 47.73. On the bond side, the performance of Treasuries, municipal and corporate bonds is more often driven by Federal Reserve activity, and Fed Fund futures prices currently indicate a 100% likelihood no change in rates when the Open Market Committee meeting concludes on Thursday. The markets have already priced in no changes for the next three years. The Dow at 27,480 and the S&P 500 are right where they were back in late February; the Nasdaq at 11,160 is not far off all-time highs. Oil prices at $37.66 have been relatively stable for five months. Gold prices at $1,909 an ounce are off the all-time highs of three months ago, but rising. The 10-year Treasury yield closed on Tuesday at 0.88%, and the 30-year at 1.65%, both roughly where they stood in early June. The 30-year tax-exempt benchmark at 1.71% is also the same yield as it was in early June. The 10-year AAA municipal general obligation bond yield last closed at 0.94%, where it stood at the end of February.

Municipal bond fund investors added another $582 million to mutual funds last week while U.S. and global equity funds faced $6.6 billion of withdrawals. State and local borrowers brought $11.6 billion of deals to market last week, raising municipal issuance totals for October to $65.2 billion, the second highest level on record. HJ Sims was in the market with two senior living financings. We underwrote an $89 million non-rated issue for Jefferson’s Ferry that was structured with a final maturity in 2055 and sold through the Town of Brookhaven Local Development Corporation with a 4.00% coupon at a premium to yield 3.75%. We also brought a $48.5 million BBB-minus rated transaction for Blakeford at Green Hills which featured a 35-year final maturity issued through the Metropolitan Government of Nashville and Davidson County Health and Educational Facilities Board with a 4.00% coupon yielding 4.40%. Among other life plan community transactions, the Henrico County Economic Development Authority issued $47.3 million of A-minus rated revenue and refunding issue for Westminster Canterbury Richmond priced at 4.00% to yield 3.19% in 2050 and the Public Finance Authority issued $50 million of A-minus rated bonds for eight Carmelite communities that had a final maturity in 2045 priced at 5.00% to yield 3.53%. In the charter school sector, the Pima County Industrial Development Authority sold $87 million of non-rated bonds for Edkey Charter Schools that had a 2055 term bond priced at 5.00% to yield 5.125%; the California Public Finance Authority issued $28.3 million of non-rated revenue bonds for California Crosspoint Academy that came with a 35-year maturity priced at par to yield 5.125%.

This week, the Federal Open Market Committee meets in Washington and the markets await the final outcomes of races where votes are still being counted. We congratulate those elected to federal, state and local offices. Public service in the age of social media in the midst of a pandemic-induced recession is extraordinarily challenging. Our newly elected leaders face harsh realities and deserve our support and best wishes. This week, voters spoke, the nation revealed its stars and stripes, the next campaigns begin, and life goes on. At HJ Sims, we are at your service, providing the right structures, financing and execution for our banking clients and outcome of income for our investors.

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