Harvard University's top-rated tax-exempt bonds, long among the richest names in the municipal bond market,
A tax-exempt Harvard bond trading at minus-11 basis points through the AAA scale in early January widened to 24bps over the scale by late April, noted Steven Majoris, vice president, portfolio manager at Advisors Asset Management, which does not hold any Harvard paper.
"I can't remember the last time that Harvard widened 35 basis points in a couple of months — you might have to go back to the 1600s," Majoris joked. "We definitely don't see those moves often for a pristine name like Harvard."
The university has $8.2 billion of outstanding municipal debt, $3.3 billion of which is tax-exempt and $4.9 of which is taxable, according to JPMorgan.
The bonds, which enjoy triple-A ratings and stable outlooks from Moody's Investors Service and S&P Global Ratings Agency, traditionally are among the market's most expensive, Majoris said. The paper benefits from extra demand as it issues in the specialty state of Massachusetts, he added.
The cheapening has been across the yield curve for the tax-exempt bonds, said John Mousseau, vice chairman and chief investment officer at Cumberland Advisors.
A tranche of the school's five year bullet bonds have seen a 30bps shift since January and the 10-year bullet bonds have widened by 35 to 40bps over the same time.
"What the university bondholders are saying is, 'Hey, there are lawsuits and we the bondholders need to be compensated for the uncertainty for these lawsuits and the back-and-forth with the administration'," Mousseau said.
"I think it's getting close to a [buying] opportunity," he added. "Anytime you get a credit of this magnitude trade off, if you were thinking of adding to it, you start thinking of it more when you get to levels at 30 to 40 basis points."
In the university's most recent tax-exempt financing, on March 18, a $217 million tranche of 5% tax-exempt debt that sold on the primary market for 113 was trading for 109 on May 19, according to the MSRB website.
"There are some people who are just shying away from the credit because of their concerns, but [Harvard bonds] are not falling off a cliff," said Chris Brigati, managing director and chief investment officer of SWBC.
The university "stickered" the bond documents for its most recent taxable deal, $750 million of bonds priced in April, warning investors of potential financial impacts of federal policies.
Actions at the federal level "may have the direct or indirect effect of reducing or eliminating federal support for the university, reducing the university's fundraising or other revenue sources, adversely affecting or eliminating section 501(c)(3) recognition or other tax benefits accorded to the university, or otherwise increasing taxes or other costs borne by the university," the supplement warned.
Mousseau said he doesn't expect ratings agencies to take action, at least not yet. "It's not at downgrade level yet — it's still playing out and they have to go through the legal maneuvers," he said.
That could change if the university is forced to dip significantly into its prized $53 billion endowment, he added.
Harvard distributed $2.4 billion from its endowment last year, accounting for 37% of total operating revenue — its largest revenue source, according to bond documents.
Federal grants for direct and indirect research totaled 11% of operating revenue in 2024.
S&P acknowledged the uncertainties but said the university remains strong.
"In our opinion, while there are uncertainties regarding the funding and other evolving sector issues, we view Harvard's financial position as sound given the university's robust liquidity and flexibility and expertise to face short-term funding disruptions and navigate fluctuating revenues," S&P analyst Jess Goldman said in an email.
The White House, which accuses the college of not doing enough to combat rising antisemitism on campus, has frozen roughly $3 billion of federal grants. Last week, the administration threatened to block the university's ability to enroll international students and require currently enrolled foreign students to transfer or lose their legal status — a move that could have a significant impact on the university's tuition revenue. International students, who often pay more tuition than Americans, accounted for 27% of the university's student body in the current school year. The population has grown significantly over the past decade.
Harvard has filed two lawsuits in response. A judge on Thursday will hear arguments over Harvard's request for a preliminary injunction to halt the ban on foreign students.
Brigati said a negative court ruling of any type would probably not impact the outstanding issues, as they would be grandfathered in, while a positive court ruling could lead the bonds to "rush back" to where they were on the curve and tighten very quickly.
The administration has also threatened to
Meanwhile, the
Jessica Lerner contributed to this report.
