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http://www.hjsims.com/news-views/weekly-market-commentary-2014-07-08/#.U8PVBY1dVEh

Weekly Market Commentary
Published July 8, 2014
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Historically, the days leading up to the July 4th holiday are slow and uneventful as trading desks are lightly staffed and attentions drift toward barbecue and beach plans. Not so last week. In response to Puerto Rico’s new debt restructuring law, large mutual and hedge funds began a sell-off which caused the prices of Commonwealth and public corporation bonds to plummet. Major rating agencies have recently announced fierce downgrades, reflecting the market’s skepticism over the territory’s willingness to repay its lenders as it begins its eighth fiscal year in recession carrying more than $70 billion of debt. In dramatic fashion, Governor Padilla said he would sue Moody’s for acting irrationally in slashing its general obligation and sales tax-backed bonds and challenged analysts to run for office if they want to run Puerto Rico. Meanwhile, on the mainland, the employment numbers for June came out like sparklers on Independence Day. Nonfarm payrolls were up 36% above modest forecasts, and the unemployment rate fell to 6.1%.The Dow Jones Industrial Average rallied above 17,000 for the first time.

Only $2.5 billion of new and refunding issues came to market last week, and municipal bond mutual funds took in just $96 million. Municipals outperformed the Treasury market, although both weakened so far in July on improving economic news and developments in Puerto Rico and Illinois, where the state supreme court ruled that health care premium subsidies for retirees are protected by the state’s constitution. Puerto Rico Electric Power Authority (PREPA) investors held their collective breaths waiting for $417 million of interest payments due on July 1 until they were paid by the trustee. Over the course of the trading week, which ended early on Thursday, the 10-year Treasury yield rose 10 basis points, closing out Thursday at 2.63% while the 10-year AAA municipal benchmark was up 9 basis points to close at 2.35%. 30-year Treasury yields rose from 3.35% to 3.46% while the tax-exempt counterpart was up 9 basis points to close at 3.37%.

In the high yield muni sector, HJ Sims underwrote $48.9 million of non-rated project and refunding revenue bonds for Carroll Lutheran Village. Bonds maturing in 2044, issued through the Mayor and Common Council of Westminster, Maryland, were priced at 5.50% to yield 5.125%. North Dakota’s Cass County Health Facilities Authority privately placed $45 million of non-rated adjustable rate revenue bonds for Essentia Health; the 2033 maturity with a mandatory tender in 2019 was priced to yield 4.79%. The Florida Development Finance Corporation sold $13.4 million of non-rated revenue bonds for Henderson Hammock Charter School; 2044 term bonds were priced at 7.20%. The Colorado Educational and Cultural Facilities Authority sold $3.6 million of non-rated revenue bonds for Swallows Charter Academy; bonds maturing in 2019 had a coupon of 5.70%. And the Massachusetts Development Finance Agency issued $21 million of revenue bonds for BBB-minus rated Merrimack College, pricing the 2044 term bonds at 5.125% to yield 5.15%.
This week has started off quietly, but investors are starting to look for places to put their sizeable July 1 coupon payments and redemptions to work. The municipal bond calendar totals approximately $3.5 billion, led by $251 million of Massachusetts Port Authority revenue and refunding bonds. We expect to see the Colorado Educational and Cultural Facilities Authority in the market again with $29 million of BB-plus rated revenue refunding bonds for Skyview Academy and $18.4 million of non-rated refunding revenue bonds for Peak to Peak Charter School. The 30-day visible supply totals $5.58 billion, and the focus is on Treasury auctions, consumer credit data, PREPA’s negotiations with its bank lenders, the
minutes of last month’s Federal Open Market Committee, and the latest forecast from Goldman Sachs which moved up the projected date of the first rate hike by six months to the third quarter of 2015.

As part of our continuing series on members of the FOMC who will vote on future rate hikes, this week we take a look at Jerome H. Powell, 61, who has been a member of the Board of Governors of the Federal Reserve System for two years. A Republican, he was nominated by President Obama as part of a compromise that allowed Jeremy Stein, a Democrat, to be confirmed by the Senate as well. Mr. Powell, who is viewed as a centrist, was reappointed last month for a term ending in 2028; his board position pays $181,500. Jay Powell was one of six children raised in Chevy Chase, Maryland. His father was a lawyer and his mother was the daughter of a law school dean who earned her master’s degree and worked part-time for the national Republican party. Mr. Powell studied politics at Princeton University and received a J.D. from Georgetown University where he was editor-in-chief of the Law Journal. After several years in investment banking at Dillon Read, Mr. Powell served as an Assistant Secretary and later as Undersecretary of the Treasury for finance with responsibility for the Treasury debt market, where he helped to revise the procedures for government bond auctions after the Salomon Brothers bid-rigging scandal. Reported to be the Fed board’s wealthiest member, he is a former partner at the Carlyle Group where he led the Industrial Group within the U.S. Buyout Fund. Mr. Powell was a visiting scholar at the Bipartisan Policy Center, and has served as a member of the board of directors of DC Prep, a charter school in Washington, D.C. He and his wife Elissa Ann Leonard, a filmmaker, reside in Chevy Chase Village, where she is a member of the Board of Managers.