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.
- Treasuries dropped across all maturities except the 2-year, while municipals showed little movement.
- Muni bond funds saw large outflow after two weeks of inflows.
- Be sure to review our previous week’s report to track the changing economic situation.
Fed Chairs Give Conflicting Opinions on Raising Rates
- Dallas Fed Chair Robert Kaplan spoke on Tuesday about low Treasury yields, suggesting the market feels that growth is sluggish. He mentioned that the Fed needs to be careful about raising rates further but is comfortable with the current level.
- The Fed Chairman of New York, William Dudley, spoke this week and announced that despite low inflation, wages should rebound and the labor market should continue to improve. This was to further the message that if the economy continues to keep showing growth, the Fed will continue its course to raise interest rates gradually.
- Jobless claims increased a modest 3,000, bringing the total to 241,000 for the week. This was slightly higher than the consensus amount of 240,000, while the four-week average increased slightly to 244,750.
- The Bloomberg Consumer Comfort Index measured at 49.4, dropping 6 bps from last week’s 50.0 measure. Even with this slight drop, these strong measures of confidence reflect strong optimism for employment.
- Last week, the Fed’s balance sheet decreased by $2.0 billion in assets, bringing the total level to around $4.474 trillion. The weekly decrease is centered in mortgage-backed securities, which fell $1.5 billion.
- During the week, money supply (M2) increased by $6.7 billion, a reversal from last week’s decrease of $11.7 billion.
Keep track of economic indicators that may impact the muni market.
Treasury Yields Continue to Drop, Munis Remain Steady
- Treasury yields all dropped with the exception of the 2-year, which increased 2 bps to a yield of 1.34%. The 10-year Treasury yield decreased 1 bps this week and is now yielding 2.14%. The 30-year Treasury yield decreased by 6 bps to 2.72% and continues to drop to the lowest levels since November 2016. Municipal yields again showed minimal movement for the second week in a row, with the 2-year AAA-rated bonds yield remaining unchanged at 0.90%. The 10-year AAA-rated bond yields decreased 1 bps to 1.84%, while the 30-year yield dropped 2 bps and is now yielding 2.70%.
- Credit spreads increased, with the largest spread between the 5-year Treasury and the AAA-rated municipal increasing by 2 bps to settle at 52 bps. The spread between the 30-year securities decreased by 4 bps to stand at 2 bps.
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 | 1.34% | 0.90% | 44 |
5-year | 1.76% | 1.24% | 52 |
10-year | 2.14% | 1.84% | 30 |
30-year | 2.72% | 2.70% | 2 |
Muni Bond Funds See Big Outflows
- After two consecutive weeks of inflows, muni bond funds saw $947 million of outflows this week.
East Bay Municipal Utility District Water System Issues New Revenue Bond Series
The East Bay Municipal Utility District, located in Alameda and Contra Costa Counties of California, issued over $185 million of Water System Revenue Bonds this week. The bonds were issued to fund the area’s water supply, treatment and distribution system and are rated AAA by S&P, Aa1 by Moody’s and AA+ by Fitch. To browse credit reports of other muni bonds issued by the State of California, click here.
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Rating Decision Updates on Muni Bonds
Upgrade
Moody’s Upgrades to A2 Sinton ISD’s, TX GOULT Bonds: The Sinton Independent School District, TX, had $17.02 million of its GOULT debt upgraded to A2 from A3. The area has shown a strong operating history, improved tax base and increased financial reserves. To explore additional credit reports about other muni bonds issued by the State of Texas, click here.
Downgrade
Moody’s Downgrades Hinds County, MS’s GO Rating to Aa3: Over $40 million of the Hinds County, MS, debt was downgraded this week to Aa3. This also includes the downgrade of the area’s $8.9 million of its general obligation refunding bonds. The county has below average financial reserves, increased pension obligations and a lower tax base, especially compared to similarly rated countries. To explore additional credit reports about other muni bonds issued by the State of Mississippi, 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.
