• Treasury yields were mixed and municipal yields all saw declines this week.

• Muni bond funds continued to gain assets with a fifth-consecutive week of inflows.

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

• The Federal Reserve Bank of Kansas City President Esther George said Thursday that its important that the Fed presses on with three interest rate rises this year and perhaps the same amount in 2019, barring any major economic downturns.

• Non-essential government services were shutdown on Thursday night but reopened Friday after a Congressional passage of a temporary two-year $400 billion spending bill that President Trump signed. However, the bill does not address the immigration issues that Congress must address via a separate vote, ahead of the next funding deadline, i.e., March 23.

• The Job Openings and Labor Turnover Survey (JOLTS) was released for December, which showed a 2.8% decline in job openings to 5.811 million. This was lower than the consensus of 5.9 million. Although this indicates the job market may be slowing down, it continues to remain strong.

• Jobless claims decreased by 9,000 this week to a total of 221,000, which is lower than the consensus amount of 235,000. The four-week average dropped to 224,500, which marks the lowest level in over 45 years.

• The Fed’s assets increased by $1.5 billion this week. This brought the total asset base to around $4.421 trillion, down $39 billion from the beginning of the balance sheet unwinding in October 2017.

• During the week, money supply (M2) increased by $4.6 billion, a continuation of last week’s $9.2 billion increase.

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

• Treasury yields were a mixed bag this week, with the 2-year Treasury decreasing by 7 bps to now yield 2.07%. The 10-year Treasury increased by 1 bps and now yields 2.85%, while the 30-year Treasury yield also increased by 7 bps and now yields 3.16%. Municipal yields all saw declines, with the 2-year AAA-rated bonds decreasing 3 bps to yield 1.55%. The 10-year AAA-rated bond yield decreased 2 bps to 2.46%. The 30-year yield also decreased by 3 bps to yield 3.01%.

• Credit spreads were mixed this week, with the largest spread between the 5-year Treasury and the AAA-rated municipal bond decreasing to 62 bps. Meanwhile, the spread between the 30-year securities increased to 15 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 saw inflows for the fifth week in a row, increasing by $621 million, after an increase of $253 million in the previous week.

The largest issue of the week comes from the Maryland Stadium Authority, which issued over $426 million bonds. The bonds are for the Baltimore City Public School System, which implemented the Construction and Revitalization Program in 2013. This program is part of a 10-year plan to improve the school facilities in the Baltimore area, which consists of 17.9 million square feet of permanent space stemming over 159 buildings. The bonds are rated AA by Fitch, Aa3 by Moody’s and AA- by S&P.

Upgrade

Moody’s Upgrades Round Lake Area Park District, IL’s, GO to Aa2 (IL): Moody’s upgraded Illinois’ Round Lake Area Park District general obligation unlimited tax (GOULT) bonds this week, affecting $6.8 million of outstanding debt. The area has a wealthier tax base, which has helped establish a healthy financial status with a low debt liability.

Downgrade

Moody’s Downgrades Horicon, WI’s, GO to A2: The City of Horicon, Wisconsin, had the ratings of $5 million of its general obligation unlimited tax bonds decrease from A1 to A2. The city has seen a gradual increase in advances to its tax increment district (TID) from its general fund. In addition, the city’s small tax base and declining operating reserves added to the woes.

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