Divided we rally. Wednesday brings a SpaceX loan, a divided Congress, and NIMBY bonds. The dollar fell against major currencies after the U.S.'s midterm election results, and the 10-year benchmark Treasury yield fell three basis points (hundredths of a percentage point) to 3.19%. The major currencies that strengthened most against the dollar were those of riskier emerging markets, like Indonesia's rupiah (up 1.5%) and South Africa's rand (up 1.1%). Here's what else is happening in the world of debt and FX:
• SpaceX loan. It sure seems like Elon Musk is having a good couple of weeks. First, electric-car company Tesla (TSLA) posted its second quarterly profit ever on Oct. 24, albeit with the help of some government-credit sales.
Now it looks like capital markets are open for SpaceX, his cool rocket-ship company. LevFin Insights reports that the company is tapping the red-hot leveraged loan market to issue $750 million of debt. This matters because SpaceX isn't just cool, it's reportedly profitable. And investors who participate in the offering will get a newly detailed look at the privately held company's financials.
• Divided Congress. The pollsters finally got something right. As was widely expected, the Democrats took control of the House and the Republicans held control of the Senate. There are a few reasons that matters for bond and currency markets, writes Goldman Sachs in a Nov. 7 note. The bank's strategists say we shouldn't expect any major pushes for tax cuts or infrastructure projects, which should mean less risk of fiscal expansion. They still expect additional tariffs to be imposed next year, and caution that it isn't reflected in short-term inflation swap pricing. Overall, "we think the removal of uncertainty and realization of the expected outcome should be positive for risk assets," the bank says.
• NIMBY Bonds. And now for an entertaining muni-market update from Court Street Group partner Joseph Krist, who highlights a dust-up over some school-improvement bonds issued by Beverly Hills Unified School District. Normally, such bonds are used to renovate buildings or improve facilities. But City Lab reported that $13 million of the proceeds were used to finance a legal fight against L.A. County Metro's plan to route a line beneath the high school. The school says it's concerned about environmental and health risks, but the metro's plan has held up to multiple court challenges, according to City Lab. Krist says it best: "The abuse of use of proceeds requirements gives ammunition to those who view tax-exempt bonds as a revenue loser for the Treasury or as a subsidy to the rich (like residents of Beverly Hills)."
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