• Treasury and municipal yields saw increases this week after the Fed decided to keep rates the same.

• Muni bond funds continued inflows for the fourth week in a row.

• Be sure to review our previous week’s report to track the changing market conditions.

• The Federal Open Market Committee (FOMC) met this week and announced that interest rates will remain unchanged at the target range of 1.00% to 1.25%. As expected, the Fed also announced that it would begin unwinding its balance sheet in October. Unwinding will begin with both Treasuries and mortgage-backed securities over the next several years.

• The Housing Market Index (HMI) fell three points in September to 64, which was lower than the consensus of 66. This matches the lowest measure of the year, tied with July’s reading, suggesting an impact caused by Hurricanes Irma and Harvey.

• Imports saw a month-over-month change of 0.6%, higher than the consensus of 0.4%. On a year-over-year basis, imports measured at 2.1%. Exports were also higher than the consensus amount, coming in at a month-over-month change of 0.6% versus 0.2%. On a year-over-year basis, exports were reported at 2.3%.

• Leading indicators had a month-over-month change of 0.4% in August, but they most likely do not reflect the damage from the hurricanes.

• Jobless claims saw a decrease of 23,000 this week, to a total of 259,000. This was again less than the consensus number of 303,000, but it still remains high thanks to displaced persons suffering from the aftermath of Hurricanes Harvey and Irma. The four-week average increased, settling at 268,750.

• The Fed’s assets decreased by $12.6 billion this week, bringing the total level to around $4.459 trillion. The weekly decrease is centered in mortgage-backed securities, which fell $11.8 billion.

• During the week, money supply (M2) increased by $25.5 billion, a reversal from last week’s decrease of $7.2 billion.

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

• Treasury yields saw increases again this week with the 2-year Treasury increasing by 5 bps to yield 1.43%. This is also the highest the 2-year Treasury has been since 2008. The 10-year Treasury yield moved up 5 bps and is yielding 2.25%. The 30-year Treasury yield also saw a gain, up 1 bps to 2.78%. Municipal yields also increased this week with the 2-year AAA-rated bond yield gaining 3 bps to yield 0.90%. The 10-year AAA-rated bond yield increased 5 bps to 1.93%, while the 30-year yield gained 4 bps and is yielding 2.83%.

• Credit spreads continued to remain mixed this week, with the largest spread between the 5-year Treasury and the AAA-rated municipal bond decreasing by 4 bps to settle at 58 bps. The spread between the 30-year securities increased by 3 bps this week.

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.

• Muni bond funds saw inflows for the fourth week in a row and gains of $547 million.

The largest issuance of the week comes from the New Jersey Economic Development, with over $549 million of Motor Vehicle Surcharges subordinate revenue refunding Series A and over $28 million of Series B bonds. The bonds are rated Ba2 by Moody’s, BBB+ by S&P, but when insured, S&P has them rated as AA. To browse credit reports of other muni bonds issued by New Jersey, click here.

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Moody’s Upgrades Crookston Independent School District 593, MN’s GOULT to A2: The Crookston Independent School District 593 in Minnesota had $14.5 million of its general obligation unlimited tax (GOULT) upgraded to A2 from A3 with a positive outlook. The debt service on the bonds is secured by the district’s full faith and credit pledge with the power to levy a general ad valorem tax of a growing tax base with moderate income parameters. To explore additional credit reports about other muni bonds issued by the State of Minnesota, click here.

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Moody’s Downgrades Bedford Area SD, PA’s GO Rating to A1; Negative Outlook Removed: The Bedford Area School District of Pennsylvania had over $21 million of its general obligation limited tax and unlimited tax bonds downgraded to A1 from Aa3 this week. The downgrade is reflective of the district’s modest rural tax base and pension burdens. However, the area has seen its financials stabilized and, thus, Moody’s has removed its negative outlook. To explore additional credit reports about other muni bonds issued by the State of Pennsylvania, click here.

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