Live market survey

Attendees of The Bond Buyer National Outlook Conference 2023 will have the opportunity to vote in a live market survey at the Metropolitan Club in New York City on February 2nd, 2023. Topics will include: market conditions and expectations, issuance projections, evolving investor base, credit conditions, growing focus on ESG factors and more.  

Transcription:

Tim Sullivan (00:09):

So we're up with our next panel. This is a live market survey. These are always interesting and timely and I'm going to turn it over to Arlene Bohner who's the head of US Public Finance for Fitch Ratings and she will service the moderator. So take it away.

Arlene Bohner (00:22):

Great. Hello everyone and thank you to the Bond Buyer for welcoming us. We have a great panel here today. I'll do some quick introductions. They're all very esteemed people with very deep experience, so I won't read everything but just hit the highlights. Diana Hamilton is a founder of Sycamore Advisors. Previously she was the director of public finance for the state of Indiana for two gubernatorial terms overseeing all debts for various state agencies. She has 30 years of experience in investment banking and finance, including time on Wall Street at Solomon Brothers and Goldman Sachs. She's a graduate of Smith College and holds an MBA from Yale University. And we have next Rick Kolman. Rick is managing director and head of the Municipal Securities Group at Academy Securities. He is also a 35 year veteran of the municipal securities industry. Spent in the majority of his career at Goldman Sachs, serving as the manager of the new issue desk. And prior to that he was co-head of the short and long-term sales training, underwriting and derivatives business for the municipal department. He also has experience at Macquarie Bank. He has served on the municipal securities rulemaking board as well as the executive committee of SIFMA where he was chairman of municipal division and he has a BS from Alma mater, Villanova University and an MBA from NYU. And then we have Nathaniel Singer who is senior director with PFM Financial Advisors and PFM Swap Advisors former chair of the MSRB and a member of sima's new product committee. He's spent 21 years at Bear Stearns trading in underwriting municipal bonds as well as running the derivatives department and was previously swapped financial group as partner and senior managing director. So let's get started. Everyone's going to need their phones for this, so please use your phone, use the camera to take a picture of the image there. That should bring you to the url or you can just type in the URL there. Our first question and you can vote. First question. So after a series of rapid federal rate hikes last year, everyone's watching to see what the Fed's going to do in 2023 and what that's going to mean for our market. What do you expect over the next six to 12 months for muni rates? And while we are waiting for some answers to come, maybe Diana, you can start us off with your thoughts.

Diana Hamilton (03:41):

So I have to of course start with the disclosure since I know Dave Sanchez is someplace around here. And I've seen Mark earlier that a, I am not an economist and even if I would, I'd have so many opinions which I do regardless. So these are my thoughts. I pay very close attention to the Fed, but this morning I kind of asked a variety of people in kind of different positions. So I asked a couple issuers a trader and one of the analysts what they thought, and no one had the same view. So I'll be very curious to see what the voting results are. And obviously this topic is, Kristen covered it. It's been really covered at every panel because I think it's on everyone's mind which is what lies ahead. I actually do think, although one of my issuers or one of the, and individuals I spoke to said it really doesn't matter what the Fed thinks. It's what the market thinks. And the market read yesterday's comments. And as we all know now, the press conference is far more important than the statement. So you have to literally sit there for 45 minutes and determine who asked the best question. And how did he parse when I say he, excuse me, chairman Powell parse his response but many people have read it to be quite dovish and that therefore our pricing in rate cuts Later on, he suggested the possibility of a soft landing, but he certainly suggested that unemployment was likely to going to have to increase. But one of the things that I noticed that they pay a great deal of attention to, and I always, besides PCE, which we all know is that he plays a great deal of attention to the supply and demand in the labor markets. And one of the things he repeats at almost every press conference is the ratio of jobs available to jobs people. The persons available as part of that is demographic as they and the Fed actually did a study, I don't know if you've ever gone to their website, but obviously I don't have enough to do in my life, but they had a very interesting study that they did. About 3.4 million people left. The labor force of those 2 million I is attributable to basically early retirements, which is, I've had enough of this, I've had Covid doing something else, I'm going to go take that, I'm going to go finally hike the Grand Canyon, or whatever the answer was. I haven't taken up surfing yet. But anyway, the second other 1.4 was basically, and I think this was noted earlier, is the cessation, virtual cessation of immigration. The other was surging deaths. So we had a much higher death rate, we had no immigration and we had 2 million people leave the labor force. And so I don't think the wage, there's been some moderation but he still said his words were, he said while recent developments are encouraging, we will need substantially more evidence to be comfortable that inflation is going down. So he certainly didn't in my mind, use the word pause. He did not use the word pivot, which is on everybody's bond. So I'm inclined to think that we have a ways to go. And as you may recall, Leo Brainard gave a talk at the University of Chicago on Friday Just before they went into their blackout period, it was entitled Stay the Course. And that was not accidental.

Arlene Bohner (07:30):

Let's see what the audience thinks. Okay, so looks like most people think rates will go higher than current levels and rates will fluctuate throughout the year was second place and rates will fall from current levels. Third place, very few people think they will stay at current levels. Let's see, anybody else have any thoughts on that?

Rick Kolman (08:00):

The one thing I did want to add as it relates to municipals is the question I asked earlier about the inverted yield curve. I would like to point out that the 2 5, 10 year part of our yield curve is extraordinarily expensive, extraordinarily rich. You're looking at Muni treasury ratios of anywhere from 55 to 65%. So we can talk about inverted curve, but actually that part of the market is extraordinarily expensive. So if you start to get volume, start to see more supply you could actually definitely see a lot more pressure on that part of the curve to go, I'll say reversed to the norm, which it's way below that right now. So despite all the top inverted curve, it's actually an expensive part of the market right now.

Arlene Bohner (08:41):

Maybe we can.

Diana Hamilton (08:42):

Potentially cheap for issuers.

Arlene Bohner (08:45):

Okay,

Diana Hamilton (08:46):

Who's rich and who's cheap, right?

Arlene Bohner (08:48):

Yeah, who you calling? Cheap? Yeah, Okay let's move on. The next question for our audience. So we all know annual muni issuance was down 21% in 2022. Many issuers started the year flush with cash with federal aid, didn't need to borrow. And rising rates throughout the year discouraged a lot of issuance as well. So what volume of issuance are we going to see in 2023? Rick, you want to start us off with that one?

Rick Kolman (09:27):

Sure. Well, if you looked at the January results, it obviously wasn't very encouraging. We were looking at about 22 billion, which is very disappointing down 20 odd percent, so not a great start. What's interesting is that we're one of the only markets that really didn't have much value. If you look overseas in Europe record amounts of governmental issuance, emerging market issuance, investment rate credits overseas, tremendous volume heists and 10 years corporate studies we're really the only market that really hasn't started the year off with decent volume. Last year on this panel was interesting. The majority of the market was around 4 75, even north of 500 billion. But obviously rates started to turn on us. There was a lot of bid warrants that I'll talk about shortly. So the whole tone changed. When you look at the predictions for this year I've seen predictions anywhere from 350 billion to some people as optimistic as 500 billion. So there is a huge range. I'll just say two things about volume, which is that number one, I attended a public-private forum from the Milken Institute a couple weeks ago, and it's interesting when you hear the audience and people talking about the infrastructure needs that we all talk about, they are huge. So that creates a piece of optimism that maybe we'll have a decent calendar coming into this year. And also I think the key lot of municipal issuers, not just about where the rates are but stability. I know conversations that I had with issuers last year when you talked to 'em about bond fund flows in negative big one is a crazy et cetera. When they hear instability, when they hear volatility, it definitely slows them down. So I'm more in the camp, it's going to be less volatile this year. I think that's going to bring some confidence back to the muni market. So I'm more optimistic that we might actually do better than we think. The only other thing, and maybe Arlene will talk about this later that I mentioned to her is that I'm reading headlines all over the country about surplus, all this money, lower taxes, I'm not seeing comments about additional debt needs. So I'm being ing to see where that plays out around the country, all this cash that they say they have versus what their infrastructure needs are.

Arlene Bohner (11:35):

Nat, did you want to add something?

Nathaniel Singer (11:37):

Yeah, do we want to wait for the results?

Arlene Bohner (11:39):

Oh right. Let's look at our results. Okay, so seems like most people believe 2023 issuance will remain around 2022 levels which was about 385 billion. So that's a little depressing, but get that.

Nathaniel Singer (12:01):

Just the one point I wanted to make is that when you think about what didn't we see in 2022 that brought volume down so much, and before I get into that, when you look at general municipal infrastructure financing and refinancing, that number's pretty steady from year to year. There's not a ton of volatility there, but what didn't we see in 2022 that we saw in 2021 is two sectors in particular higher end healthcare that we saw higher end healthcare come in big time in 2021 and they were selling taxable debt, long taxable debt at crazy low yields and tight spreads. And those are two sectors that I spent a lot of time in. And I can tell you one thing, my clients are flushed with cash. They haven't spent all the money that they got, they raised in 2021 and they don't seem to be in a hurry to spend because it's taxable deal. The short term rates are now higher than where they sold their debt. So they're earning positive arbitrage and they don't have any tax issues associated with spending that money down in a certain period of time. So for those higher end healthcare bankers that are out there, I don't think I'm telling you anything that you don't already know is that you're going to be kind of like the Maytag repairman for the next year. I think that's going to keep volume down. And just tying in the last question to this one, Rick talked about how rich ratios are at the front end of the curve and I was just talking to Glenn McGowan about that also about how rich they are because we've got some deals coming that will probably stress that front end of the curve. If I was a betting man, which I am I would bet that ratios stay low that I think they are vulnerable. But there seems to be so much cash in the market that even if we do test the front end with supply, I think the demand's going to be there to meet it.

Arlene Bohner (14:11):

Okay, thank you. Let's move on to question three. Bond outflows and bids wanted hit record levels in 2022, which contributed to municipal underperformance versus 20 versus treasury. Excuse me, in 2023, what are we going to see? Please vote. Okay, Rick, you want to lead us off with that one? Sure.

Rick Kolman (14:40):

It's interesting. Last year on this panel when there was more of a positive environment in the marketplace, I actually threw out some numbers to the audience. It had to do with five days in a row and I threw out numbers like one point billion, 900 million, one and a half billion, et cetera. And I asked the audience, you know what that is? It was crickets. Nobody knew what I was talking about. That was the start of bid. That was the start of bond outflows. That was the start of the negative tone in the marketplace. So what we witnessed last year, when you look at 22 versus 21 in 21, the average day of bid one, it's from bond funds and needed cash was about 500 million. Last year is closer to a billion and a half some days was two and a half billion. And obviously as a result you saw bond outflows in 2021 though maybe two weeks the entire year where you didn't see positive flows last year. Maybe you had two weeks old year. We had some positive flows. So the point of it was a real really rough year. The good news starting this year is that yesterday, for example, we actually had a record amount of inflow record meaning for the past year. So maybe that's sending a message that we are seeing more cash in our market, but that's about bond flows. As Nat, just talked about. There are other segments in the marketplace, the SMAs have had a tremendous amount of cash and we're looking at the retail order periods, a lot of money being spent i e why we've had these ratios get as expensive as they are and these SMAs don't seem to want to stop. So to me, if we're going to be a little more stable range, I don't think that we're going to have that negative tone in the market From the bond outflows, I do believe it's going to be more of a positive tone overall. You're not going to get as much pressure on the secondary market, which will help overall supporting issuers. And also getting back to NA's point, there is a lot of cash, and again, we can't forget the SMAs that have had tremendous amount of inflows particularly supporting the market inside 10 years.

Arlene Bohner (16:33):

And let's see what our audience thinks. Okay, so pretty split actually. So most people think well the majority, not the majority plurality of people think plural that outflows will stabilize followed by outflows and bid wanteds will continue and inflows will rise and bid, wanteds will decline. So Diana, you have thoughts on that?

Diana Hamilton (17:07):

Well, I think we're looking at a slightly different market. Mean if we only looked, I mean obviously the bond funds, are we going to recover a hundred billion or 105 billion or what was the number 121, right? Some somebody correct me.

Rick Kolman (17:23):

Close enough.

Diana Hamilton (17:24):

Close enough for government work. So we obviously lost a lot of money on the mutual funds we gained on the ETF side. I think some of the comments on the last panel about the flexibility of investors that ETFs provide I think is very informative. Now at my kitchen table, we are not discussing the twos to 10 yield curve. But that being said, I kind of refer in the muni market to what I call the soup bowl between twos to tens because it's the weirdest shape, yield curve I've seen in some time. And from an issuer standpoint where my issuers have flexibility, I've been encouraging them frankly to move as much of their principle forward. The other thing that I think is extremely important is your retail order period and including SMAs during that period with all of the caveats that was Mark Kim mentioned earlier on. But from a disclosure standpoint and from an equity standpoint. But my point is that I think we're in a slightly different market from an investor's standpoint. And so as a consequence, I'm actually, and to Nat's point, there's a lot of cash out there. And again, the Fed publishes this, just go to their website. They have a very insightful publication actually that talks about where money's being held and by whom. And I find that helpful. So my view is if there's money, there's buyers, they're selective. So to David Wilmax point you if you have to be in the market, you just have to decide how you're going to attract that group of buyers and what you're, so strategy becomes very important as an issuer.

Nathaniel Singer (19:15):

I promised I wouldn't do this tag on, but I'm just going to ask a question. No, how many people own Munis in their account in their personal accounts? Come on, be proud. This is our industry. This is not Jim Leventhal, but okay, how many people don't own Munis in their account?

Arlene Bohner (19:33):

Some of us aren't allowed.

Diana Hamilton (19:35):

Yes.

Nathaniel Singer (19:36):

We should all meet later in the corner of the room and I'll tell you why you should own Munis. And it's such an easy argument right now looking at the yields that you can get and compare it to volatility in the equity market and long term growth of your portfolio. And I say that in just, but what I'm seeing from going around the country is what Rick has mentioned that the SMA is, it's such an easy argument right now to convince people to buy munis. They've gone through a horrendous year in the equity market. Yields are finally higher. You've got the inversion of the curve and I don't think people are necessarily paying attention to ratios right now because they're looking at the absolute yield. And I think that argument is going to be easy going forward. And you talk to these SMAs, some of the SMAs talk directly to their accounts. I'd say most of them don't talk directly to the individuals. They allocate percentages of the portfolio to different sectors. And it's pretty sexy right now allocating to Munis. And I think we're going to continue to see that going forward and what's going to release the pressure on the market will hopefully we'll start to see more inflows and the bid wanted debate. So I voted for number three here or that I think the technicals are going to continue to look better.

Rick Kolman (21:03):

And if you're a taxable buyer, you should definitely buy taxable munis over similarly rated corporate bonds.

Arlene Bohner (21:08):

Okay, Thank you. So I like it. Nat Singer, the new Jim Leventhal. Billon, right. Okay. We'll be looking for you on the TV commercials. Our next question since most of the people in this audience think issuance is not going to return to 2021 levels, is the industry appropriately sized? Please vote. And Nat, if you have thoughts on that

Nathaniel Singer (21:40):

Now I'm really going to be Jim Leventhal that I've been doing this for almost 40 years and seen cycles in the market where we've seen people staffing up and we've seen staffing get reduced. And I think, Rick, you might agree with me that historically I'd say we tend to always get that backwards, that we tend to staff down and we need more staff, we tend to staff up and we don't need more staff. It's been pretty easy over the last few years to service our clients that it's been a great market. The exception last year was more difficult as our clients have been flushed with cash, they've had a lot of opportunities. I think it's going to start getting harder because I think as we're starting to see some deficits pop up, who knows maybe the Fed overdid things and we start to see the economy start to slow down. But I think the markets will start getting more difficult and issuers are going to need our help now. The help that they get from our industry, it's phenomenal. We've got phenomenal bankers in our industry and I put our bankers up against any corporate bankers. I deal with both sides and we provide a service ridiculously cheap. Ridiculously cheap. And that's a separate discussion whether we've cut our own legs off there, why we do it so cheap. We give tremendous execution on the underwriting side at very tight spreads. We hear about in the corporate market all the time, the new issue premium. I hate those letters. I hate it. I hate the fact that they feel like they have to sell their bonds at a concession to the market. Where the term we hear here is we try and get as close to the pin as we can and we do that. We sell bonds very, very close in the new issue market to where it's done in the primary market. So again, issuers, great execution. So why is there all this pressure in the industry? I think we've taken the wrong approach in some regard in that we focus so much on underwriting spread and take down. But I think a lot of the real costs that are putting the pinch on the industry, it's regulatory and compliance cost and it's capital charges that the dealers are disincented from making big efforts into the muni market and providing even more liquidity to the muni market that they do. And that we need to focus treasury, we need to focus congress on the good work that we do as an industry, number one. And number two, kind of the constraints that we're up against. Why are capital charges so high for banks on providing basic products like letters and lines of credit or standby purchase agreements when we know that munis don't default as often as corporates that work better credits triple B munis default like AA or Triple A corporates. So why are capital charges so high? And, it's not a little issue, but for every tax exempt desk on the street, the more tax exempt bonds that you own in your portfolio, it hurts the rest of the firm's interest deduction for carrying securities. And it's this little known thing called the Leslie Formula. So it creates disincentive for dealers to own bonds. So I think if we really want to strengthen the industry, keep doing what we're doing, keep providing the quality service for our clients, but let's SIFMA get the MSRB, let's get some of the groups focused more on making it easier for us to do business in the muni market in Washington and not more expensive.

Arlene Bohner (25:45):

Let's see our audience, I'm sorry. Thanks. And it looks like most people think there will be more reductions.

Rick Kolman (25:57):

The one thing I wanted to add is the interesting point that that said about the cost, regulatory cost is interesting. Actually Diana and I were at a conference last week, round table sponsored by FINRA and M S R B and that was one of the topics that actually came up. A lot of the firms there said, what's really challenging for us to grow and move forward? You say you want to help us, you want to see more DNI advancement, but there are a lot of challenges that come out of the folks here in Washington. So definitely not. That was a topic that actually came up that definitely hurt or people felt if you were a smaller dealer will say that it really, it was very difficult, these extra costs to really move forward and really to grow your enterprise. So it's definitely an excellent point.

Arlene Bohner (26:39):

Yeah. Okay. Let's move on to question five. What will have the greatest impact on issuer credit in 2023 and being the writing agency person? I got nominated to talk about this one first, but I definitely want to hear what my co-panelists have to say. We'll see what the audience thinks. But I would say of this list, labor pressure is really the thing that we're hearing from all of our issuers that they're having trouble dealing with both from the standpoint of being in a rising wage environment and also difficulty in procuring actual people to fill the jobs that they need to fill. So which again would impact the wage spiral. So it's a particular concern, particularly acute for healthcare and in particular hospitals. Some of them are having to come up with innovative ways of dealing with their staffing challenges. They're doing things like pairing virtual workers with an in-person worker and just trying to think outside the box so that they can just get their hospitals appropriately staffed. Their hospitals I would say are among the issuers who have a lot of inflexibility in terms of ability to raise their revenue. So some issuers like utilities might have an easier time capturing their costs and a rate structure some don't. Hospitals are challenged local governments are challenged. It's it's really a major problem for them and that sort of bleeds into the inflation and operation operating expenses one also. But I'm curious to see what the audience has to say. Can we put the answers up? Okay. So inflation operating expenses number one. Yeah, that's definitely seeing a lot of that with our issuers. The cost of supplies and cost of wages I would include in that as well. Anyone have any thoughts on that?

Diana Hamilton (29:14):

I deal with a lot of utilities and some of the things are more graphic than you care to know about in the TMI category, but the cost of operating the plants right now between the cost of chemicals labor removal of various items baby wipes for a huge problem in case you want to know in 2020, 21 clogging sewer systems across the country. But I think the operating expenses, because we've always operated when we're doing proformas kind of thinking, that three percent's the norm on projecting and we are having to parse, we're having to take every piece of operating apart and say, okay, this is what pension's going to look like, here's what our labor contracts are up. So we have to take apart all of that. So it's made kind of budgeting and projecting on a going forward basis, which we have to do for them in order to give them the performance that they want much, much more challenging than it has been in prior years.

Arlene Bohner (30:24):

Yeah. Okay. Let's move on to question six. Trying to keep us on schedule here. Concerning ratings changes, upgrades, far out pace downgrades in 2022, what will the trend be in 2023? I can kick us off on this one also. So for most of our public finance sectors, we have a deteriorating outlook. It's a deteriorating sector outlook for 2023. And what that means is that we think that the operating environment for most of our issuers is going to be more challenging this year. They're going to face more headwinds, but in many cases, many issuers are entering into this more difficult environment, better positioned than they've been in a very long time. So we don't think that's going to necessarily translate into rating changes. We think many public finance issuers just inherently have resilience an ability to control their operating budget. And some of them have built up resilience throughout the pandemic using their federal funds wisely and positioning themselves very well. So I was in the even category, but let's see what our audience has to say. Okay. Relative balance between upgrades and downgrades. And some people think downgrades will outnumber upgrades. Very few people think upgrades will outnumber downgrades.

Diana Hamilton (32:17):

Can I offer an edit comment? Sure. So one of the things as a former issuer that used to always irritate me was they said we rate throughout economic cycles, we don't adjust our ratings based on an economic cycle. And obviously we had multiple challenges between 2008 and the pandemic and everything else, but I still think that, I don't really feel that. I think the rating agencies still get very focused on the economy when looking at ratings. And so I think the notion that they rate through cycles is not as accurate as I would like it to be.

Arlene Bohner (33:01):

We do try to do that and the way that we do that is we try build in a stress to our model. So we're not rating two current conditions, we're rating two stressed conditions and taking that stress into account. And in many cases we've not seen the actual stress exceed what our modeled stress is. So that is sort of how we deal with that challenge of trying to rate through economic cycles.

Diana Hamilton (33:28):

Okay. The only thing I would add on that is I really think the pandemic gave everyone on the issuer side a great opportunity to demonstrate their ability to manage. And so I think governance and management were exceptionally well demonstrated during the pandemic. Agreed. And I think the flexibility and the dexterity or the nimbleness, how whatever phrase you want to use was some of my issuers who don't like to move. I was surprised with how fast they moved.

Arlene Bohner (34:09):

Management definitely shined during the pandemic, that's for sure.

Diana Hamilton (34:13):

Okay, so could you get that in quotes please?

Arlene Bohner (34:19):

Okay, let's move on to our next question. How will the growing focus on ESG factors affect the growth of ESG labeled or designated issuance in the next two to five years? Nat, You want to lead us off on that one?

Nathaniel Singer (34:36):

Sure. And I thought maybe the best way to lead this off was to give a little bit of a description of a case study from the deal that I worked on a couple weeks ago for the city of Chicago where there was a specific series in that deal, first time for the city that was designated as social bonds. And we had a lot of discussions with underwriters, not just the underwriters on the deal, but other underwriters on the street. Is there going to be a pricing differential? Is sort of juice worth the squeeze in getting these bonds designated as social bonds? And the answer was unanimously no that and backed up by empirical evidence that social bonds and non-social bonds unmatching series priced pretty much identically and we heard stories. It really isn't an asset class, it's just a designation. And we didn't take that no as an answer. And I think maybe what I titled this case study is you got to try. So the city went out of their way and tried things that would create more demand for the social bonds. They added a selling group first time. I've had a selling group in years on deals and they spent a lot of time educating the selling group on the social bonds and through the retail order period, allowed the selling group to enter orders during the retail order period for the social bonds local ads. Kind of like what New York City used to do that. They had ads about the bond deal at the L stops, they had radio ads within the city telling people about the opportunity to help support the city and about the projects they were supporting. Yeah, that was all part of this huge education effort. And then the disclosure I thought in the OS was great talking about the ESG Bonds. And we got a nice shout out. I liked reading the article yesterday from Dave in the Bond Buyer where he talked about the importance of promoting the social bonds and standardizing some of the disclosure. And he used Chicago as an example of great disclosure, so proofs in the pudding. So what happened? Would you expect to get retail mom and pop demand from Illinois residents and city of Chicago residents? No way. No way. It's I state we're not a specialty state like California and New York. We got tremendous demand. We've got for the hundred and 60 million in social bonds, we had 165 million in orders during the retail order period. And I know you could say, well, a lot of that was probably SMAs. SMAs came in for the bonds, but when you broke the SMAs out, we had over 11 million in mom and pop retail orders from Chicago zip codes, which was everybody thought was tremendous. All of the underwriters were really surprised at that. And then for the state of Illinois, when you aggregate all the mom and pop orders within the state of Illinois, it was almost 24 million in retail demand, helped us create a lot of leverage, helped us in the pricing and ultimately we had some matching maturities, which we did on purpose. Same coupon, same call features, same ratings, same lean social bonds and non-social bonds. And based on market demand, the social bonds priced three to five basis points through the non-social bonds. So I thought it was a great example if you throw that up against all the examples of there where there was no pricing differential, say, well why did it happen? And I think a lot of it is the effort. So if you have the proper marketing effort sort of leads into the question, I think then it's important for municipalities to go through the process of getting verification on the social bonds and as long as you get a pricing benefit, it's going to accelerate the growth of this sector.

Arlene Bohner (38:50):

Let's see what our audience has to say and okay, moderate acceleration and growth. Rick, you were going to add something.

Rick Kolman (38:59):

Just again, it's interesting when you talk to taxable investors overseas, it's exactly what you were describing that you know, look at what they require, disclosure, et cetera. And you've seen a big difference in terms of whether the European investor or things and they look at a taxable municipal bond versus maybe what a domestic, so what you're describing is what's been happening overseas in Europe in terms of the focus. That's where our demand is and it's interest in it that it kind of finally played into a taxes and financing.

Arlene Bohner (39:26):

Yeah, very interesting.

Diana Hamilton (39:27):

But, Rick, I think part of that has to do with the standardization and a disclosure because I think.

Rick Kolman (39:33):

Yeah, absolutely. That's what I'm saying, that absolutely that you have a market that's been showing that for a while and I think we finally saw that here. Absolutely.

Diana Hamilton (39:40):

Yeah. I mean eBird and the World Bank I think really took the lead on that and that really was extremely helpful. So I mean one of the things that our clients have run across is just issues of disclosure and that was obviously brought up on a prior panel and getting economists agree, it'd be really nice to get all of our bond council to agree on what constitutes full disclosure. And many of the issuers I've worked with have done, as long as they basically tie it to the expenditure proceeds, they'll disclose as long as until proceeds are spent and then they kind of close the books. It does become an issue later on when you're trying to trace, particularly if you're funding multiple projects and they're, what pieces are in there, what useful life you have. So it becomes more complicated during a refunded. So I think the call for standardization and disclosure that is not overly burdensome to the issuer is extremely important.

Arlene Bohner (40:44):

Okay, great. Thank you. Let's move on to our next question. What will have the biggest impact on the public finance industry in 2023? Diana?

Diana Hamilton (40:56):

Oh God.

Arlene Bohner (40:58):

You see our choices.

Rick Kolman (41:00):

It's similar to a prior question.

Diana Hamilton (41:02):

So I tend to think actually the direction of rates can have a lot of moment, but actually, I'm going to go back to Rick. I think stability we live in a very uncertain world. My son, who is no longer part of the college demographic. Instead he's floating on a ship in the Pacific as a Marine. So conversely enough, the US Marine saved my son's life for the time being at least. But that being said, I think I remember one day we were pricing a transaction and it was the day that, and it will end. It was a green bond by the way, and the head trader said, I will never say there was a pricing benefit to it unless I can be. He said, because I'm going to have the SEC in my office in about 15 minutes. He said, so whatever we personally think, whatever feedback we got, we were on the phone with one of the large funds. Their initial order on Ipreo was 28 million. They were asking about disclosure. We had an hour long conversation during the pricing of this guy, and as we were speaking, the order went from 28 and it popped up to 58. So just making him comfortable with the disclosure that we were going to utilize for that bond added 30 million to his order. Was that proof? You know, tell me, but I think it's going to be very important on a going forward basis for us to figure that all out.

Nathaniel Singer (42:48):

Well, I'm going to go off the board here. I think that we don't have the right answer as one of the choices that the biggest impact in 2023 on the industry is going to be broad use of derivatives. That's my answer. And say it every year in one of these years, I'll be right.

Diana Hamilton (43:03):

All Right, well.

Rick Kolman (43:05):

All if I could just, your common stability is, you're right, it means it's funny what's on here. To me, I think a conversations last year, again, many issues I spoke to was more like, I don't want to hear one more time about bid one to bond after. I want some stability, I want it to be calm. And that was kind of a driving force in a lot of the conversations. Right?

Diana Hamilton (43:26):

Well, and we've got obviously elections coming up. We have a very divided congress and the day that we actually priced that ESG Bond at whatever hour a Korean missile flew over the Pacific and what we moved up the pricing, I mean it was like seven 30 in the morning. He said, we're going out at eight 10. And the issuer looked at me and I said don't fight the flow, let's go. So I think the problem is we live in a world where there are many things that are going on. We can pay attention to the Fed right net. We have the luxury of paying attention to every word Jay Powell says right now. But what we don't know is what's going on in the global context and that has a great deal of impact.

Rick Kolman (44:12):

I can just tell you that Benet Academy have a pretty who's who on our advisory board, and you're a hundred percent correct. Every question they get is not about interest rates, it's about what do you think of China? What do you think of Ukraine? What do you think? What's going to happen next in Korea? Everyone of the questions is geopolitical.

Diana Hamilton (44:29):

Yep. That's the world we live in.

Arlene Bohner (44:30):

All right, we have three seconds left for our most important question of the day. Let's bring it up and can we vote who is going to win the Super Bowl?

Rick Kolman (44:45):

Probably Cincinati and San Francisco fans are going to boycott.

Arlene Bohner (44:48):

Yeah, well sorry, can we get the results up? Oh, pretty close, but it looks like Kansas City got the edge oh no, Now it's 50-50. See that's what happens when you don't wait.

Diana Hamilton (45:09):

See how did that happen?

Rick Kolman (45:10):

Some more votes.

Arlene Bohner (45:13):

This is live voting here. Okay. Well thank you everybody. Thank you to our panel. It was wonderful to get your insights and we appreciate hearing from you all. So and thank you to the audience for voting and participating in our panel.