Weekly Market Update

GREAT EXPECTATIONS GONE AMISS?

Thursday, March 23, 2017

Subsequent to last week's announcement of the first interest rate hike of 2017 and the third increase since the financial crisis, the U.S. dollar has continued to tumble. As of Tuesday, Bloomberg's Dollar Spot Index experienced five consecutive days of declines and dropped to its lowest position since November 10. Immediately following the presidential election, what was known as the "Trump Trade" began. The trade was based on assumptions of decreased taxes, increased spending on infrastructure, and decreased regulation. Under these conditions, combined with an inflationary environment, the dollar would prevail. The bullish trade began reversing the optimistic trend in the beginning of 2017 and has not yet found a bottom.

In Other News

  • In February, the Just Public Finance Program of University of California's Haas Institute released a report raising the question of fully-funded pensions. The report covers topics regarding accounting for public pensions and argues that fully funding pensions may be a "misguided goal." Retirement Security Initiative, an industry advocacy group, has pushed back, stating the report presents less than compelling evidence to support this claim.
  • In recent years, the University of Maryland College Park has begun strategically spinning off and privatizing parts of the University in order to focus on monetization, endowment growth, and low tuition. The University believes the plan will better enable it to achieve its mission.
  • The final quarter of 2016 saw a record number of foreign holders of municipal bonds, totaling $106.4 billion, representing a 32% increase in just two years. Despite the lack of tax benefit that domestic investors are afforded by investing in municipal bonds, interest from foreign investors continues due to yields that may be more difficult to find in other countries.
  • On Tuesday, President Gordon Gee of West Virginia University and President Jerome Gilbert of Marshall University appealed to the state in a joint letter, asking leaders to reconsider cutting funds for higher education. In recent years, the State of West Virginia has cut funding for higher education to cover deficits.
  • While bond yields remain low on an absolute basis, returns could eventually be flat or even negative. The rate hike announced last week increases rates on the short end of the curve, but yields on long maturities may end up the same as forward rates, potentially causing flat or negative returns.
  • Last week, a group of administrators, faculty, and staff of Howard University released a letter regarding University President Dr. Wayne A.I. Frederick. The undated, anonymous letter expressed extreme disappointment in Dr. Frederick's leadership and lackluster results, calling for his termination. Several media outlets were also copied on the letter .

Rating Agency Update

  • Moody's assigned Baa2 to St. Edwards University's Series 2017 bonds. The outlook is stable.
  • Moody's assigned Baa1 to Biola University's Series 2017 bonds. The outlook is positive.
  • Moody's affirmed Pomona College's Aaa rating. The outlook is stable.
  • Moody's assigned Aa2 to Bowdoin College's Series 2017 Taxable bonds. The outlook is stable.
  • S&P assigned AA to Oberlin College's Series 2017 bonds. The outlook is stable.