Marketing Commentary: Voting Rites

One year from now, we will be glued to the TV, possibly into the wee hours, waiting for the presidential election returns to come in, watching the Electoral College votes roll up toward the magic number of 270. Roughly half of us will be celebrating, while the other half will be drowning sorrows or clinging to the hope that a recount can change the outcome. In what could be a sign of things to come, citizens in many key states marched to the polls this week to make their views known on those best suited for state and local offices. Governor’s races in Mississippi and Kentucky took top billing but the composition of state legislatures in Virginia and three other states were determined and dozens of mayoral seats including Philadelphia, Houston and Charlotte were decided. Voters faced an array of ballot questions as well and voted online, by mail, on paper or through machine. New York, which allowed early voting for the first time, decided whether future tallies would allow for the ranking of choices among candidates. New Jersey residents voted on whether to give veterans living in retirement communities a $250 property tax deduction. Kansas voters chose whether or not to adjust federal census figures for redistricting. Washington State had a nonbinding advisory vote on the tax on vaping products. San Francisco and Durham, North Carolina residents pulled levers to determine whether to issue bonds for affordable housing, Texans had a referendum on $200 million of water and wastewater infrastructure bonding, and those in the Tucson area decided whether to become a sanctuary city. It was an off-year election but one that was just as important as any other; every vote had an impact, and the casting of ballots was as much about patriotism and civic responsibility as it was about party or politics.

U.S. investors are accustomed to voting every day — on the value of public companies, the creditworthiness of sovereign governments, and the prices on everything from corn to titanium to assisted living communities. In October, we elected to support the rising prices of stocks, oil, gold and bonds with shorter maturities. The major equity indices all closed stronger: the Dow Industrials were up 129 points, the S&P 500 Index was 60 points higher and the NASDAQ gained 3.7%. Oil prices rose by 11 cents per barrel and gold increased by more than $41 an ounce. The U.S. Treasury market was active, with $ new issue sales. Over the course of the month, 2-year yields dropped 10 basis points from 1.62% to 1.52% while 10-year yields inched up 3 basis points to 1.69% and the 30-year yield rose 6 basis points to 2.17%. On the tax-exempt side, the 2-year municipal general obligation bond yield fell 11 basis points to 1.11% but the 10-year increased 7 basis points to 1.49% and the 30-year muni finished 5 basis points higher at 2.17%. Municipal bond mutual funds took in more than $5 billion in October with high yield funds accounting for $1.5 billion of the total. Inflows have been recorded for 43 consecutive weeks, a new record. Taxable fixed income funds added $16.5 billion of net cash while U.S. and global equity funds had $14 billion of outflows. The ICE Bank of America Merrill Lynch municipal index posted a monthly return of +0.12%. Some of the best performers in the sector were single family housing (+0.34%), pre-refunded (+0.29%), state general obligation (+0.22%) and high yield muni bonds (+0.20%). The ICE BofAML corporate index had a return of +0.61%.

In October, the Federal Open Market Committee made its third and perhaps final quarter point cut of the year. Markets were buoyed by this as well as by stronger than expected corporate earnings and economic data, the three-month Brexit time out, and the announcement of the first phase of a trade deal with China. Traders mostly shrugged off the party-line U.S. House vote adopting procedures for the conduct of an impeachment inquiry. Corporate issuance tailed off but municipal volume was the heaviest of the year at $52.1 billion, more than 38% higher than last year. Taxable bond sales accounted for about 26% of the total as an increasing number of borrowers are choosing to achieve savings by advance refunding higher coupon bonds at the low prevailing taxable rates. The largest taxable negotiated deal of the month was an $857 million A1 rated general revenue bond issue of the New York State Thruway Authority which had a maximum yield of 3.50% in 2042. The largest high yield issue was a $294.9 million BB rated California Municipal Finance Authority sale for United Airlines at Los Angeles International Airport; bonds due in 10 years were subject to the alternative minimum tax and priced at 4.00% to yield 2.60%.

November issuance typically runs seven percent below that of October and the month is usually a volatile one (most notably in 2016) with wide price swings as investors begin to position for year-end while dealing with many political uncertainties. Only five full trading weeks remain in the year and a lot can happen. There is no Fed monetary policy meeting scheduled this month, but we have the short-term government funding bill expiring the week before Thanksgiving, trade negotiations on NAFTA and with China, and the continuation of impeachment-related hearings. Supply is chasing demand for the first time this year but there are always opportunities for discerning investors. HJ Sims is in the market with a $59.6 million unrated Cumberland County Municipal Authority refunding for Asbury Atlantic, Springhill in Erie, and Bethany Village Retirement Center in Mechanicsburg, Pennsylvania. We are also bringing a $216.7 million non-rated Shelby County Health, Educational and Housing Facility Board financing for the new Farm at Bailey Station community in Collierville, Tennessee.

On Monday, the bond markets are closed in observance of Veterans Day. We are again grateful for the opportunity to recognize members of the HJ Sims family who have served our country in active duty roles both in wartime and in peace. And we join the nation in saluting all members of the armed forces and the veterans and families who have sacrificed so much to preserve rights and freedoms that billions around the world do not have.

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