MunicipalBonds.com provides information regarding the performance of muni bonds for the past week in comparison with Treasury yields and net fund flows, as well as the impact of monetary policies and relevant economic news.
- Bond yields decreased across the board for all maturities this week.
- Muni bond funds saw inflows after three consecutive weeks of outflows.
- Credit spreads between Treasuries and AAA-rated municipal bonds remained relatively unchanged.
- Be sure to review our previous week’s report to track the changing economic situation.
After Last Week’s Rate Increase, Bond Yields Decline
- Chicago Fed Chairman Charles Evans spoke last week and indicated that four rate hikes for 2017 would be a distinct possibility, especially if inflation were to increase past the 2% mark.
- New York Fed President William Dudley spoke last Friday and stated that the economy is in a good place and that monetary adjustments need to be less accommodative. Being too accommodative could lead to an inflation problem over time and the Fed needs to be very delicate on how it makes these adjustments.
- Last week, the Fed’s balance sheet increased by $8.7 billion in assets, bringing the total level to around $4.48 trillion. The weekly increase is centered around a $6.5 billion increase in mortgage-backed securities.
- During the week, money supply (M2) increased by $55.5 billion, which indicates that after last week’s stock market sell-off, investors are sitting on cash.
- Existing home sales data were softer than expected and down 3.7% to 5.48 million on a month-over-month basis. This was slightly below the consensus amount of around 5.56 million, but the measure is still up 5.4% on a year-over-year basis.
- New home sales data came in 6.1% higher than expected in February at 592,000. This is higher than the consensus amount of 565,000 and near the higher end of the consensus of 600,000.
- Jobless claims showed an increase of 15,000 to reach 258,000 for the week. This raises the four-week average by a mere 2,750 units to 240,000. However, the number is still considered low, proving that the job market continues to perform strongly.
Keep track of economic indicators that may impact the muni market.
Bond Yields Mostly Decline
- Treasury yields declined across all maturities for the second week in a row, with the two-year Treasury yield decreasing by 5 bps. The 10-year and 30-year Treasuries also saw decreases from last week, down by 9 bps and 10 bps, respectively. Shorter-term municipal yields for two-year AAA-rated bonds decreased by 3 bps. The 10-year AAA-rated municipal decreased by 13 bps while the 30-year decreased by 10 bps.
- Credit spreads remained relatively unchanged, with the largest spread still remaining between the five-year Treasury and the AAA-rated municipal at 34 bps. The 30-year AAA-rated municipal continues to yield 9 bps higher than its Treasury equivalent.
Be sure to check our Market Activity section to keep track of daily muni trades and historical trades of muni CUSIPs across the U.S.
Credit Spread
| Maturity | Treasury Yield | Muni Yield | Spread (in BPS) |
|---|---|---|---|
2-year | 1.26% | 1.04% | 22 |
5-year | 1.95% | 1.61% | 34 |
10-year | 2.41% | 2.30% | 11 |
30-year | 3.01% | 3.10% | -9 |
Muni Bond Funds See Inflows After Three Weeks of Outflows
- Reversing the three week outflow trend, municipal bonds showed inflows of $55 million. With the Fed raising rates last week and the bond market stabilizing, investors seem to be taking interest in muni bonds again.
New York State Urban Development Corporation Issues Tax Revenue Bonds
The biggest new issue of the week was more than $1.8 billion of the New York State Urban Development Corporation bonds. The bonds are rated AA+ by Fitch and AAA rated by S&P. The Series 2017A is made up of over $800 million in new bonds while the Series 2017B is made up of over $1 billion and is federally taxable. To browse credit reports of other muni bonds issued by the State of New York, click here.
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Rating Decision Updates on Muni Bonds
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Moody’s Upgrades Oceanport, NJ’s GO Rating to Aa3 from A1: The upgrade of $850,000 of the Oceanport Borough, NJ’s general obligation debt was due to the area’s increasing tax base, improved financial position and reduced debt burden. To explore additional credit reports about other muni bonds issued by the Borough of Oceanport, New Jersey area, click here.
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Moody’s Downgrades Algonac Community Schools, MI to Baa1; Outlook is Negative: Moody’s downgraded the Algonac Community Schools, Michigan general obligation unlimited tax bonds to Baa1 from A2. This rating change affects $24 million of outstanding debt and reflects the district’s continued deterioration of reserves, which have been caused by declining student enrollment and elevated pension exposure. To explore additional credit reports about other muni bonds issued by the State of Michigan, click here.
We provide this report on a weekly basis. To stay up to date with muni bond market events, return to our News page.
