• Treasury yields and municipal yields were mostly all up for the week.

• Muni bond funds continue to witness a second week of more than $1 billion of inflows.

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

• As of Friday night, Senate Republicans and Democrats were unable to agree on a stopgap funding measure to continue government services. Thousands of federal employees will be placed on furlough, meaning they won’t report to work Monday. Senate continued to work through the weekend to try to reach an agreement and reopen the government.

• San Francisco Federal Reserve Bank President John Williams spoke yesterday and announced that three rate hikes this year will be a good start, as he expects the tax reform plan to boost economic growth.

• The Bloomberg Consumer Comfort Index came in at 53.8 to reach a new 17-year high. This index is a weekly, random-sample survey that tracks America’s views on the condition of the U.S. economy, its personal finances and the buying climate.

• Jobless claims decreased by 41,000 this week to a total of 220,000, significantly lower than the consensus amount of 250,000. This recent decrease made the four-week average drop to 244,500. This low measure is the lowest reading in 45 years, indicating that the job market is very strong.

• The Fed’s assets decreased by $6.9 billion this week. This brought the total asset base to around $4.439 trillion, down by almost $20 billion from the beginning of the balance sheet unwinding in October 2017.

• During the week, money supply (M2) increased by $20.5 billion, a reversal of last week’s decline of $5.5 billion.

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

• Treasury yields were all up again this week, with the 2-year Treasury rising 6 bps to now yield 2.06%. The 10-year Treasury yield increased by 11 bps and now yields 2.66%, while the 30-year Treasury yield gained 8 bps and yields 2.93%. Municipal yields also saw gains, with the exception of the 2-year AAA-rated bond, which fell by 1 bps to yield 1.58%. The 10-year AAA-rated bond yield increased 2 bps to 2.15%, while the 30-year yield also saw a slight gain of of 1 bps to yield 2.80%.

• Credit spreads increased this week, with the largest spread between the 5-year Treasury and the AAA-rated municipal bond increasing this week to now be at 72 bps. The spread between the 30-year securities also increased to 13 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.

Municipal bond funds again saw a large inflow of $1.061 billion this week, after an increase of $1.042 billion in the previous week.

The largest issue of the week was from the Commonwealth Financing Authority from Pennsylvania, which issued over $412 million of revenue bonds this week. The bonds are Series A of the 2018 Plancon Program. When a school district undertakes a major school construction project and seeks reimbursement from the Commonwealth, the process is known as “Plancon,” which is an acronym for Planning and Construction Workbook. The bonds are federally taxable and rated A1 by Moody’s and A by S&P.

Upgrade

Moody’s upgrades Cascade Charter (Township of), MI’s Issuer and GOLT Ratings to Aaa; Outlook Stable: The Township of Cascade Charter in Michigan had $4.0 million of its general obligation limited tax (GOLT) debt upgraded to Aaa from Aa1 this week. The area has a very large and financially strong tax base, mixed with a very modest debt burden.

Downgrade

Moody’s Downgrades Peoria, IL’s GO rating to A2; Outlook Revised to Stable: The city of Peoria, Illinois, had over $156 million of its general obligation bonds downgraded to A2 from A1 this week. The city has a growing pension burden that along with recent erosion in the city’s reserves could spell credit concerns going forward.

We provide this report on a weekly basis. To stay up to date with muni bond market events, return to our News page here.