Market Commentary: Time to Reset

Published April 9, 2019

In 1973, the U.S. Department of Defense launched the Global Positioning System project — a global satellite-based radio navigation system, first known as Navstar GPS, designed for use by the military. It went online for civilian use on January 6, 1980 at midnight UTC and became operational in 1995. As a government-owned system operated and maintained by the 2nd Space Operations Squadron at Schriever Air Force base in Colorado, access may be denied to any receiver and service can be degraded at any time. Russia, India, Japan and the European Union have developed, or are developing, their own systems and China plans to fully deploy its third generation constellation in 2020. Satellites hosting the U.S. system are apparently not able to encode data and time information in the DD/MM/YY 00:00:00 format most familiar to us; they keep track of time in weekly increments and the older versions of GPS max out at 1,024 weeks or 19.6 years.  Recent navigational improvements have extended the reset length to 157 years. But if devices are not updated, then after 19.6 years, they revert back to the 1980 epoch or to the date of the last reset, August 21, 1999. Last Saturday night at 7:59 p.m. EDT our 31 active GPS satellite systems were reset again and, for the first time since Y2K, a lot of eyes were on the rollover. Glitches were expected to affect receivers manufactured before 2010 used by some airlines, utilities, financial and telecommunication systems that rely on precision timing. Among those affected were 15 Boeing 787 Dreamliners that had to be grounded in China.

Also not getting off the ground last week were U.S. trade talks with China. In Washington, there has been more repositioning of personnel, particularly in the Homeland Security area.  The increment of presidential candidates again increased. Oil prices were reset nearly five percent higher. And there is still an unusual glitch in the Treasury yield curve wherein the 2-year note yields more than that of the 5-year. Bonds weakened across the board. The 2-year Treasury rose seven basis points to 2.33% and the 2-year AAA municipal general obligation bond added four basis points to close at 1.53%. The 10-year Treasury picked up nine basis points to finish at 2.49% and the 10-year muni increased seven basis points to 1.93%. Bloomberg reported that the muni/Treasury ratio at 77% was at its lowest level since at least 2001. The 30-year Treasury bond yield ended up nine basis points to 2.90%, while the long muni yield spiked 10 basis points to 2.70%.  Municipal bond fund inflows totaled $873 million with high yield funds taking in $350 million of that total. Lipper reports that year-to-date totals for long-term funds ($11.5 billion) and California funds ($1.7 billion) have set new record highs.

On the muni calendar last week, the Florida Development Finance Corporation sold $1.75 billion of non-rated variable rate surface transportation facility revenue bonds for the Virgin Trans USA Passenger Rail project. The Arizona Industrial Development Authority issued $49.8 million of BB+ rated education revenue bonds for the Fire Mesa and Red Rock campuses of Doral Academy of Nevada, structured with a 2049 maturity priced at 5.00% to yield 4.25%.  The Authority also had a $13.3 million BB rated financing for the Lone Mountain campus of the Somerset Academy of Las Vegas that had 30-year bonds priced at 5.00% to yield 4.40%.  The City of Crookston, Minnesota had a $46.9 million non-rated deal for Riverview Health that included 2051 term bonds priced at 5.00% to yield 4.60%.

This week, on the heels of the NCAA national championship victories of the Baylor Lady Bears and Virginia Cavaliers, we expect to see a constellation of phenomena. First quarter corporate earnings are rolling out. The World Bank Group and the International Monetary Fund meet in Washington. The chief executives of the major U.S. banks will testify before the House Financial Services Committee. Israel holds elections. The European Central Bank meets Wednesday. Saudi Aramco is in the market with a $10 billion, A+ rated, six-tranche U.S. denominated debt issue that has attracted a reported $100 billion in interest. The Treasury has a $38 billion 3-year note auction. U.S. economic data releases include factory orders, durable goods, job openings, consumer and producer price indices, inflation, and the import/export price indices. The municipal calendar totals $6.7 billion and includes a $612 million non-rated Tuscaloosa County Industrial Development Authority financing for Hunt Refining Company in Alabama. The Roanoke County Economic Development Authority is in the market with a $93.2 million non-rated residential care facility revenue and refunding bond issue for Richfield Living. The Public Finance Authority of Wisconsin is bringing a $33 million BB rated student housing revenue bond transaction for Nevada State College. The 30-day visible supply of municipal bonds totals $8.5 billion.

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