Market Commentary: Fair Winds and Following Seas, Mr. President

Published December 4, 2018

And then there were four: Presidents Barack Obama, George W. Bush, Bill Clinton and Jimmy Carter. The oldest former president in U.S. history died on November 30 at home in Houston at age 94. George Herbert Walker Bush is now the 12th president to lie in state on the Lincoln catafalque in the Rotunda under the 8.9 million pound dome in the center of the U.S. Capitol. Family, former staff, lawmakers, judges, world leaders and American citizens from across the country came to pay respects to the nation’s 41st president. His military honor guard included sailors from the USS George H. W. Bush, the Navy’s newest aircraft carrier. Tributes to the family man and public servant with the gold standard resume will continue for thirty days. A national day of mourning for the Navy hero, Congressman, Ambassador, CIA director, Vice President and President is being held today as his life is celebrated at a National Cathedral memorial service.

The country pauses for the first time since 2007 to say farewell to a former commander in chief. Stock and bond markets closed midweek to honor “41” leaving only about 12 active trading days in 2018. Wall Street is focused on trade negotiations, Brexit votes, Russia, and the Treasury yield curve. Three year yields rose above those of the five year on Monday for the first time since 2007. After weeks of market see-saws on interest rate jitters and speculation on progress in trade talks with China, November came to an end on Friday. Federal Reserve Chairman Jay Powell’s remarks at the Economic Club of New York seemed to indicate that rates may be just below the range of neutral, implying to some that Fed hikes might slow or taper off, and this put a rosy glow on November markets. When the closing bell rang on Friday, stock indices ended higher as did bonds and gold while oil prices sank by more than 22 percent. The Dow finished the month up 422 points to 25,538 bringing gains to 819 points on the year. The S&P 500 closed higher by 48 points to 2,760, up 3.2% or 86 points year-to-date. The Nasdaq added 24 points to finish at 7,330 and boasted a 6.2% increase since the start of 2018. Gold prices rose more than $7 an ounce to $1,220 but remain lower by $82 or 6.3% on the year. Oil prices fell $14.38 a barrel to $50.93, a 22% drop in one month, and have dropped $9.49 a barrel of 16% this year.

Treasuries strengthened across the curve in November. The 2-year yield dropped from 2.86% to 2.78%, the 10-year fell from 3.14% to 2.98%, and the 30-year went from 3.39% to 3.29%. The difference between the 2-and 30-year yields narrowed from 53 basis points to 51 basis points. With less than one month to go in 2018, the 2-, 10-, and 30-year yields are higher by 90 basis points, 58 basis points and 56 basis points, respectively. Municipal bonds outperformed governments last month. The 2-year AAA general obligation bond yield fell 15 basis points to 1.92%, the 10-year dropped 22 basis points to 2.51% and the 30-year ended down 16 basis points to 3.22%. However, like Treasuries, yields have risen an average of 52 basis points across the curve. The 2-year benchmark is 36 basis points higher, the 10-year is up 53 basis points, and the 30-year yield has climbed 68 basis points. Investors have added a net total of $1.6 billion to municipal bond mutual funds this year, but there have been $9.7 billion of redemptions in the past 10 weeks.

HJ Sims came to market last week with a $51.4 million financing for Tuscan Gardens of Delray Beach. Bonds were issued by Palm Beach County, Florida with a first mortgage series priced at par to yield 7.00% in 2048, a subordinate series priced at par to yield 8.50% in 30 years and a taxable first mortgage series priced at par to yield 4.25% with a step coupon. Also in the senior living sector, the City of Atlantic Beach, Florida sold $114.7 million of BBB rated healthcare facilities revenue bonds for Fleet Landing that came with a 2053 maturity priced at 5.00% to yield 4.58%. The Henrico County Economic Development Authority in Virginia issued $40 million of A-minus rated residential care facility and refunding bonds for Westminster Canterbury Richmond including 2048 term bonds priced at 4.375% to yield 4.50%. The Duluth Economic Development Authority sold $26.9 million of non-rated health care facilities revenue bonds for Cambia Hills of East Bethel structured with 2055 term bonds priced at par to yield 5.75%. The City of Bethel, Minnesota issued $18.5 million of non-rated housing and healthcare revenue bonds for the St. Peter Communities of Benedictine Health System featuring 2048 term bonds priced at 5.50% to yield 5.65%. The Arizona Industrial Development Authority brought a $20 million non-rated deal for Windsong Senior Living due in 2053 and priced at par to yield 7.00%; and the Authority also privately placed $5.5 million of nonrated 12.00% bonds due in 2023. In the charter school Sector, the Capital Trust Agency of Florida placed $8.4 million of non-rated 8.25% bonds due in 2025 for Championship Academy of Distinction at Davie in Hollywood.

This week, HJ Sims is in the market with a $9.9 million Michigan Finance Authority financing for BB+ rated Universal Learning Academy in Westland, and a $54.6 million BB+ rated Iowa Finance Authority revenue bond issue for the Northcrest Community in Ames, Iowa. Also on the $9 billion calendar, the Arizona Industrial Development Authority is bringing a $14.6 million BB rated transaction for Mater Academy of Nevada’s Mountain Vista campus. The Oconee County Industrial development Authority has a $32.1 million non-rated deal for Presbyterian Village Athens. The Pinellas County Educational Facilities Authority plans an $18.2 million Baa3 rated issue for Pinellas Academy of Math and Science. And the Illinois Finance Authority is in the market with a $39.8 million non-rated deal for Westminster Village in Bloomington. This first week of December is dominated by the solemn military pageantry coordinated by the Army Military District of Washington and involving a joint task force of nearly 4,000 from all branches of service for the funeral of President Bush. This week, as we honor our forty-first president known for his Thousand Points of Light Foundation, we also celebrate the Festival of Lights. On behalf of all in the HJ Sims family of companies, we wish our readers a Happy Hanukkah.

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