Market Commentary: Running for the Roses and Other Records

Published May 8, 2019

A record $165.5 million was bet on the Kentucky Derby this weekend, and it turned out to be an unforgettable race. For the first time in the 145-year history of “The Run for the Roses”, the winning horse was disqualified for an on-track violation, interference with other horses turning for home leaving the quarter pole. There are plenty of other records in the headlines these days ranging from the President’s tax filings to the high temperatures that are expected in the Pacific Northwest this week. Among other firsts, Avengers: Endgame has grossed $2 billion in ticket sales, faster than any other film in history. A 35-year old named James Holzhauer from Las Vegas has been smashing records on Jeopardy!, boasting the 10 largest single-game winning totals ever for the show. In contrast to the fastest two minutes in sports, a 29 year-old from Flagstaff named Jim Walmsley just set a new world record time (4:50:07) for running a 50-mile race. At the time of this writing, Major League Baseball’s 2019 home run rate is ticking 5 percent above 2017, when the last all-time high was set. And, although we love to say we hate our politicians in Washington, the District of Columbia just reported that 21.9 million visitors came to the nation’s capital last year, shattering all previous records and adding a whopping $7.8 billion to the local economy.

The month of April saw record highs set in the S&P 500 (2,945) and the Nasdaq (8,161). The Dow finished at 26,504, below its October 2018 high. Oil prices rose 6% on the month to $63.91, but Saudi Aramco’s $12 billion bond issue proved to be one of the most oversubscribed on record, enabling the energy company to borrow at a lower yield than Saudi Arabia itself. The 7-day high grade municipal market index of variable rate demand obligations (SIFMA municipal swap index) reached a high not seen since October 2008; at 2.30%, the benchmark yield remarkably approached that of the 17-year AAA general obligation bond. And mutual fund investors have set new milestones for inflows into municipal bond funds: $30.8 billion has been added since the start of the year, including $8.3 billion in April and $6.5 billion in total to high yield muni funds.

Last week saw the first trading in May. On the $5.3 billion municipal slate, the Florida Higher Educational Facilities Financing Authority issued $68.9 million of BBB-minus rated revenue and refunding bonds for Saint Leo University with a final maturity in 2049 priced at 5.00% to yield 3.73%. The Metropolitan Government of Nashville and Davidson County Health and Educational Facilities Board came to market with a $22.3 million BBB-minus rated refunding and improvement bond issue for Trevecca Nazarene University in Nashville featuring 2048 term bonds priced at 5.00% to yield 3.74%. The Public Finance Authority of Wisconsin sold $27.5 million of non-rated revenue bonds for North Carolina Leadership Academy in Kernersville, structured with a 2054 term bond priced at 5.00% to yield 4.876%, and $6.4 million of non-rated charter school revenue bonds for IC Imagine in Asheville, North Carolina that had 30-year maturities priced in two series: at par to yield 7.00% and at an adjustable rate.

The demand for municipal bonds in relation to the supply has been out of whack for 16 consecutive months. With new issuance expected to total only $10.1 billion in the next 30 days, CreditSights is reporting the 30-day net supply at negative $17.2 billion. There were $19.4 billion redemptions on May 1 for reinvestment with abundant cash on the sidelines. As well, jittery nerves are causing new flights to safety, as the U.S.S. Abraham Lincoln and massive U.S. firepower head to the Middle East, trade talks with China are pressured by U.S. threats of higher tariffs, and North Korea conducts more missile tests.

There are not often such favorable conditions for non-profit borrowers, but buyers looking for higher tax-exempt yields will find few opportunities in the primary market this week. The Maryland Economic Development Corporation is bringing a $105.4 million Baaa3 rated financing for the Seagirt Marine Terminal at the Port Of Baltimore. The Mississippi Development Bank has a $13 million non-rated Green Bond Gulf of Mexico Energy Security Act of 2006 financing. The Phoenix Industrial Development Authority plans an $8.3 million non-rated transaction of Leman Academy of Excellence in Oro Valley. The Oregon Facilities Authority is in the market with a $5.2 million non-rated issue for Howard Street Charter School in Salem. And the Industrial Development Authority of Polk County, Florida has a retirement facility revenue refunding and improvement bond sale for Carpenter’s Home Estates in Lakeland.

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