• Bond yields saw increases in Treasuries while muni yields declined.

• Muni bond funds continued to see a second week of inflows.

• Credit spreads between Treasuries and AAA-rated municipal bonds widened this week.

• Be sure to review our previous week’s report to track the changing economic situation.

• Fed Vice Chairman Stanley Fischer spoke on Friday, saying that although he believes economic data was not as strong as expected during the first quarter, the Fed will maintain its interest-rate hikes as planned.

• On Tuesday, British Prime Minister Theresa May announced that she wants to hold the next general election on June 8. This was confirmed the next day by Parliament and is well before the next scheduled date in 2020.

• The Bloomberg Consumer Comfort Index reported a measure of 49.9, which is strong even though it is slightly lower than last week’s 51.0 measure that was the strongest level in eight years. Consumers remain confident in the economy with a good labor market.

• The Housing Market Index reported at 68, a three-point drop from March’s report. Although the data is still strong thanks to new homebuilders, it was lower than the consensus estimate of 70.

• Jobless claims data showed an increase of 10,000 jobs this week, bringing the total claim amount to 244,000. This was slightly higher than the consensus estimate of 242,000 but the four-week average dropped to 243,000.

• Last week, the Fed’s balance sheet decreased by $5.2 billion in assets, bringing the total level to around $4.48 trillion. The weekly decrease was centered in mortgage-backed securities, which fell $4.2 billion.

• During the week, money supply (M2) increased by $42.1 billion, a bounce back from last week’s $38.7 billion decrease.

Keep track of economic indicators that may impact the muni market.

• Treasury yields showed an increase across all maturities. The two-year Treasury yield increased by 4 bps to 1.25%. The 10-year Treasury saw an increase of 7 bps to 2.31%, while the 30-year Treasury increased by 6 bps, yielding 2.95%. On the other hand, municipal yields did not show gains this week. The two-year AAA-rated bonds stayed flat and remain at 0.98%. The 10-year AAA-rated municipal decreased by 5 bps, while the 30-year decreased by 2 bps.

• Credit spreads increased this week, with the largest spread between the five-year Treasury and the AAA-rated municipal increasing 5 bps to 43 bps. The spread between the 30-year AAA-rated municipal and the 30-year Treasury had an 8 bps move in the opposite direction from the week prior, with Treasuries yielding 5 bps higher than the municipal 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.

• For the second week in a row, muni bond funds showed an inflow of $194 million. With the stock market showing declines in the last few weeks, investors are running to fixed income investments for stability.

The week’s biggest issue was from the State of California, which released over $603 million in general obligation various purpose bonds. The bonds were rated Aa3 by Moody’s and AA- by both Fitch and S&P. The proceeds are to be used to refund some of the state’s debt services. To browse credit reports of other muni bonds issued by the State of California, click here.

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Moody’s Upgrades Iowa Central Community College’s GO to Aa2: Moody’s upgraded $1.8 million of the Iowa Central Community College general obligation bonds to Aa2 from Aa3. The college has shown a stable financial status for several years, with operating surpluses, low debt and manageable pension burdens. To explore additional credit reports about other muni bonds issued by the State of Iowa, click here.

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Moody’s Downgrades Northeastern Illinois University to B1; Rating Under Review for Downgrade: $32 million of the Northeastern Illinois University Series 2010 and 2012 were downgraded to B1 from Ba2. With state funding in question, the university has seen weakened cash flow even with several actions that were designed to decrease spending. To explore additional credit reports about other muni bonds issued by the Northeastern Illinois University, click here.

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