- A Madison, WI-based Authority has approved a $250MM bond issue for a Chicago redevelopment project aiming to transform more than 50 acres of mostly vacant, former industrial land on the city of Chicago’s north side into a new neighborhood. Sterling Bay is issuing the bonds through a PFA rather than the city of Chicago or the state of IL to speed up financing. This PFA issues debt around the US. The capital appreciation bonds for Sterling's Bays Lincoln Yards will come to market in the next 60 days. Overall, this is great for our markets. However, it could confuse some with the name of the bonds as it could point to a different "issuing authority" rather than, in this case, Chicago.
- The new issue Muni underwritings this week have put some pressure on the overall pricing in the fixed income markets. Visible supply will remain elevated this week with a $150MM Las Vegas NV issue coming to market anytime. I suspect these issues will be bought and put away as the yields are > 4% on the long in and most at discounts.
- Speaking of Vegas, the Las Vegas Convention and Visitors Authority is borrowing money to help pay for Phase 3 of its capital plan, which will upgrade the existing convention center and build a lobby. The Authority expects to borrow $600MM, on top of the $1B they have already issued for phase 2. Just two years ago, no one would touch a convention center. I suspect the bonds will be cheap and should come out next month. It will be interesting to see what the ratings are. I suspect S&P will upgrade the Vegas Convention Center over time, as their business has started to come back.
- Chairman Powell faced a significant setback in fighting inflation based on the JOLTS numbers. Powell wants the jobs numbers to decline to cool wage pressure, but the Labor Department numbers this week showed the trend is starting to move in the wrong direction. Openings rose to 11.2MM in July, up from 11MM in June, the first increase in four months. This figure sent the T yields to a 14-year high and exacerbated the equity market decline. MUNIs have been marked up ~ 20bps over the last two weeks, and they have given back most, if not all, of the gains we saw last month. I suspect we will continue to see volatile markets as we move through September, so take advantage of the opportunity.
- AAA callable yields: 1-year 2.25, 2-year 2.27, 5-year 2.28, 10-year 2.57, 20-year 3.08 and 30-year 3.26, all up.
- The FED pushed back against any ideas that they would soon reverse course on raising interest rates to stamp out inflation. They are committed to restoring price stability and will likely maintain this policy stance for the balance of this year. The FED is still targeting 2% inflation, which is the bank's "overreaching goal at this time," while hinting that another 75bps hike is coming. The decision for the September meeting will depend on the totality of the incoming data and the evolving outlook. I suspect we will see 75 bps in September while another 25 to 50 in October.
David Loesch
dloesch@drlgroup.net
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Katy, TX 77450
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