• Treasury yields jump while municipals remain relatively unchanged after Fed announces rates will remain the same.

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

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

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

• The ADP Employment Report showed that employers hired 177,000 jobs, slightly above the consensus amount of 170,000. This positive reading continues to substantiate the strength of the U.S. labor market.

• Jobless claims data showed a 19,000 decrease this week, bringing the total claim amount to 238,000. This was a favorable trend as the figure was way below the consensus estimate of 246,000. However, the four-week average had a slight increase to 243,000.

• The current unemployment rate fell by 0.1% to 4.4%, showing the growing strength in the labor market and marking the lowest reading for this measure since May 2001.

• As expected, the Federal Open Market Committee met this week and decided to keep interest rates in the target range of 0.75% to 1.00%. With a lower than expected Q1 2017 GDP, the Fed felt that the economic data did not warrant a hike in rates.

• International trade in goods saw a decline in $43.7 billion, slightly off the consensus amount of -$44.5 billion. Exports dropped 0.9%, which was caused primarily by industrial supplies and autos. Imports also fell by 0.7%, which was caused by declining capital goods.

• Last week, the Fed’s balance sheet increased by $1.1 billion in assets, bringing the total level to around $4.47 trillion. The weekly increase was primarily caused by other assets that rose $1.3 billion.

• During the week, money supply (M2) increased by $600 million, a very slight increase compared to last week’s massive increase of $30.7 billion.

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

• Treasury yields jumped this week, with the two-year Treasury yield increasing by 5 bps to 1.31%. The 10-year Treasury saw an increase of 7 bps to 2.35%, while the 30-year Treasury increased 4 bps to 2.99%. On the other hand, municipal yields were relatively flat except for the longer maturities. The two-year and ten-year AAA-rated bonds showed no movement. The thirty-year AAA-rated bonds showed a modest 2 bps increase, with current yield at 3.04%.

• Credit spreads increased this week, with the largest spread between the five-year Treasury and the AAA-rated municipal increasing 8 bps to 44 bps. 30-year AAA-rated municipal bonds yield 5 bps more compared to its 30-year-old Treasury counterpart.

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 fourth week in a row muni bond funds showed an inflow of $149 million last week.

The California Health Facilities Financing Authority issued over $1.7 billion in revenue bonds that are issued for the benefit of the Kaiser Foundation Hospitals. The bonds are rated A+ by Fitch and AA- by S&P. There are two subseries, the 2017A-1 (Green) and the 2017A-2. The Green bonds are over $408 million of bonds that are dedicated to funding eco-friendly initiatives the hospitals have put in the works. To browse credit reports of other muni bonds issued by the State of California, click here.

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Moody’s Upgrades Lake Elmo, MN’s GO to Aa1; Outlook Stable: Lake Elmo, MN had over $9.9 million of their general obligation bonds upgraded to Aa1 from Aa2 this week. This is due to the city’s positive trend of increased financial stability and its strong liquidity stance. To explore additional credit reports about other muni bonds issued by the State of Minnesota, click here.

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Moody’s Downgrades to Aa3 Fallbrook Union ESD’s (CA) Outstanding General Obligation Bonds: The Fallbrook Union Elementary School District in California had their GO bonds downgraded from Aa2 to Aa3. This affects over $27 million of outstanding debt and was due to the district’s narrowing financial reserves and weakening tax base levels in the area. To explore additional credit reports about other muni bonds issued by California School Districts, 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.