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.
- Bond prices fell as both Treasury and municipal bond yields rose across all maturities.
- Muni bond funds continued positive inflows for the third week in a row.
- Be sure to review our previous week’s report to track the changing economic situation.
Real Estate Market Data Shows Signs of Slowing
- Existing home sales fell 2.80% in December to $5.49 million – lower than the consensus of $5.55 million on an annualized basis. Despite a 0.70% increase year-over-year basis, the recent declining trend shows that the real estate sector may be coming to a halt.
- New home sales of 536,000 was lower than the consensus figure of 593,000. This is a 10.40% drop off from the November amount of 598,000 and the year-on-year sales rate declined by 0.40%. Although December’s measure was lower than anticipated, the three-month average is still relatively strong at 568,000.
- The Fed’s balance sheet decreased $7.90 billion in assets from the week prior, bringing the total level to $4.45 trillion. The decrease is due to a decline of $6.40 billion in mortgage-backed securities. Before you proceed, you might want to look at different economic indicators that can impact the bond market.
- The weekly change in Money Supply (M2) was positive at $19.8 billion, a large decrease from the $60.3 billion from last week. Investors seem to be gaining confidence with the stock market hitting new highs as they move cash off the sidelines.
- GDP data was released last Friday, with a quarter-over-quarter change of 1.9%. The GDP price index reported 2.1% increase on a quarter-to-quarter basis. Some positives included personal consumption, residential investment and business investment that were up by 2.5%, 10.2% and 2.4%, respectively.
- Jobless claims of 259,000 was more than the consensus figure of 246,000 and the highest in four weeks. However, the four-week average slightly dropped by 2,000 jobs to 245,500. This average is one of the lowest measures in over 40 years, indicating that the labor market is very strong.
- The Bloomberg Consumer Confidence Index remained steady at 45.2; its strong level indicates optimism around the economy and job outlook.
Yields Rise Across the Board
- All Treasury and municipal yields increased for the week, with the 2-year Treasury increasing 3 bps to 1.22% and the 2-year municipal yield increasing 1 bps to 1.13%. Longer-term maturity yields also increased slightly, with both the 10-year and 30-year Treasuries increasing 1 bps each. The 10-year and 30-year AAA-rated municipal yields had more movement, increasing 3 bps and 5 bps, respectively.
- Credit spreads further widened, with the 2-year maturity increasing to 9 bps and the 5-year maturity increasing to 25 bps. On the other hand, the 30-year maturity had municipals yielding 6 bps higher than the 30-year Treasury, and it continues to prove the worth of tax-free investment.
2-Year Yield Movement
10-Year Yield Movement
30-Year Yield Movement
|Maturity||Treasury Yield||Muni Yield||Spread (in BPS)|
Muni Bond Funds See Third Straight Week of Inflows
- For the third week in a row, municipal bond funds saw $154 million of inflows. With interest rates now stabilized for the time being and no expected date for the next rate hike, investors are flocking back to the tax-free bond funds.
State of Wisconsin Issued New Refunding Bonds
The state of Wisconsin has issued over $529 million of bonds, of which $367 million is federally taxable. The bonds are rated AA- by S&P, AA- by Fitch and Aa3 by Moody’s. These bonds are being issued for advance refunding of all or a portion of certain maturities of the 2009 Bonds (refunded bonds). To browse through credit reports of other muni bonds issued by the State of Wisconsin, click here.
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Rating Decision Updates on Muni Bonds
Moody’s Upgrades Port of Port Townsend, WA’s GOLT Bonds to Aa3 from A1; Outlook Removed: The Aa3 rating on the Port’s GOLT (general obligation limited tax) $8.6 million in outstanding bonds reflects a large tax base that has been recovering from the recession, a healthy demand for the Port’s services, and the relatively small scale of operations. To explore additional credit reports about other muni bonds issued by the state of Washington, click here.
Moody’s Downgrades University of West Alabama to Baa1 from A3; Outlook Negative: The University of West Alabama’s (UWA) $25.3 million of the General Fee Revenue Bonds Series 2010-A and Taxable Series 2010-B had a rating decrease to Baa1 from A3 with a negative outlook. This reflects the school’s continued weak operating performance with insufficient cash flow to cover debt service and softening liquidity.
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