• Treasury yields and municipal yields were a mixed bag this week.

• Muni bond fund flows returned to inflows.

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

• The Federal Reserve Open Market Committee met this week, and as expected, rose rates by 0.25%. The federal funds target rate is now set at 1.25% to 1.50%. The general consensus is that the Fed will most likely raise rates two to three more times in 2018 under the new Fed Chair Jerome Powell.

• The Job Openings and Labor Turnover Survey (JOLTS) reported 5.996 million job openings, falling 2% from October’s reading. Hires also rose to 5.552 million.

• Consumer Price Index showed a month-over-month change of 0.4%, thanks to higher gasoline prices. CPI also showed a 2.2% reading on a year-over-year basis.

• Jobless claims decreased by 11,000 this week to a total of 225,000, much lower than the consensus amount of 239,000, and further proof of a strong labor market. This recent decline made the four-week average decrease slightly to 234,750.

• The Fed’s assets increased by $15.6 billion this week, bringing the total level to around $4.453 trillion. The weekly increase is centered in mortgage-backed securities which rose $13.1 billion.

• During the week, money supply (M2) decreased by $4.0 billion, a reversal of last week’s increase of $35.7 billion.

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

• Treasury yields were mostly down, with the exception of the 2-year Treasury, which rose 5 bps to now yield 1.84%. The 10-year Treasury yield decreased by 3 bps and is now yielding 2.35%, while the 30-year Treasury yield fell 8 bps and now yields 2.69%. Municipal yields mostly saw gains this week except for the 2-year AAA-rated bond, which saw no change and continues to yield 1.47%. The 10-year AAA-rated bond yield increased 3 bps to2.02%, while the 30-year yield also saw a gain of 3 bps to yield 2.66%.

• Credit spreads remained increased this week, with the largest spread between the 5-year Treasury and the AAA-rated municipal bond increasing 3 bps this week, and is now at 51 bps. However, the spread between the 30-year securities decreased by 11 bps this week and now stands at 3 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.

• After a large outflow of $935 million last week, muni bonds returned back to inflows with an increase of $70 Million in assets.
   

The Illinois Sales Tax Securitization Corporation had over $743 million Sales Tax Securitization bonds issued this week in three different series. Series 2017A consists of over $172 million bonds, the Series 2017B consists of over $400 million and the Series 2017C consists of $171 million. Both Series 2017B and Series 2017C are taxable, while 2017A is tax-free. The bonds are rated AAA by Fitch, AAA by KBRA and AA by S&P. To browse credit reports of other muni bonds issued by the State of Illinois, click here.

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Moody’s Upgrades Mount Pleasant, IA’s GO to Aa3 From A1: The City of Mount Pleasant, Iowa, had $12 million of its general obligation unlimited tax (GOULT) bonds upgraded to Aa3 from A1. The city has had a growing tax base, which has led to healthy financial operations and strong reserves. To explore additional credit reports about other muni bonds issued by the State of Iowa, click here.

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Moody’s Downgrades Doylestown Hospital (PA) to Baa3; Stable Outlook: The Doylestown Hospital Authority of Pennsylvania had $98 million of its outstanding debt downgraded to Baa3 from Baa2 this week. The hospital missed hitting its budget goals in 2017 due to a decline in operating performance. To explore additional credit reports about other muni bonds issued by the State of Pennsylvania, 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.