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.
- As expected, the Fed raised rates 25 bps with a target range of 1.00% to 1.25%.
- Treasuries dropped across all maturities, while municipals showed little movement.
- Muni bond funds saw inflows for the second week in a row.
- Be sure to review our previous week’s report to track the changing economic situation.
As Fed Raises Interest Rates, Treasury Yields Fall
- The Federal Open Market Committee (FOMC) met this week and, as the market expected, raised rates 25 bps to a target range of 1.00% to 1.25%. The Fed said the labor market is growing stronger and business spending is expanding. This caused Treasury yields to fall across all maturities this week to match the low levels seen last November.
- Fed Chairwoman Janet Yellen spoke after the meeting and indicated the central bank believes inflation will fall well short of its 2% goal. She stated that inflation has declined recently, even though household spending has increased. The Fed will also begin the process of unwinding its balance sheet, which it expanded by buying bonds and other securities in order to fight the housing crisis.
- The Consumer Price Index was soft for the month of May, with the month-over-month change down 0.1% and the year-over-year change reporting at 1.9%. Both measures were below the consensus estimates, which was mostly caused by a large decline in energy prices.
- Jobless claims decreased by 8,000, bringing the total to 237,000 for the week. This was lower than the consensus amount of 243,000. The four-week average increased slightly to 243,000, showing continued strength in the labor market.
- Last week, the Fed’s balance sheet increased by $13.8 billion in assets, bringing the total level to around $4.476 trillion. The weekly increase is centered in mortgage-backed securities, which rose by $11.6 billion.
- During the week, money supply (M2) decreased by $11.7 billion, a continuation from last week’s decrease of $3.3 billion.
Keep track of economic indicators that may impact the muni market.
Treasury Yields Drop, While Munis Show Little Movement
- All Treasury yields dropped this week, with the 2-year decreasing 1 bps to a yield of 1.32%. The 10-year Treasury yield decreased 5 bps this week and is now yielding 2.15%. The 30-year Treasury yield decreased by 8 bps to 2.78% and was at the lowest level since November 2016. However, municipal yields showed minimal movement, with the 2-year AAA-rated bonds yield increasing by 1 bps to 0.90%. The 10-year AAA-rated bond yields decreased 1 bps to 1.85%, while the 30-year yield remained unchanged at 2.72%.
- Credit spreads decreased, with the largest spread between the 5-year Treasury and the AAA-rated municipal shrinking by 5 bps to settle at 50 bps. With declining Treasury yields, the spread between the 30-year securities decreased by 8 bps to stand at 6 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.
2-Year Yield Movement
10-Year Yield Movement
30-Year Yield Movement
|Maturity||Treasury Yield||Muni Yield||Spread (in BPS)|
Muni Bond Funds Continue to See Inflows
- After last week’s $871 million of inflows, municipal bond funds continued the positive trend with another inflow of $310 million this week.
California Pollution Control Financing Authority Solid Waste Disposal Issues Revenue Bonds
The California Pollution Control Financing Authority Solid Waste Disposal issued over $228 million of revenue bonds this week. The bonds are considered green bonds, which allow investors to invest in projects that directly benefit the environment. The bonds are not rated by any agency and are subject to AMT. To browse credit reports of other muni bonds issued by the State of California, click here.
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Rating Decision Updates on Muni Bonds
Moody’s Upgrades Hamburg, MI’s GOLT to Aa1: The Township of Hamburg located in Michigan had $4.3 million of its general obligation limited tax debt upgraded to Aa1 from Aa2. This is due to the township’s growing tax base, moderate debt burden and strengthening operating reserves. To explore additional credit reports about other muni bonds issued by the State of Michigan, click here.
Moody’s Downgrades Washington University (MO) to Aa1 With Stable Outlook; Assigns Aa1 to Series 2017A: Washington University of Missouri had $375 million of its Taxable Educational Revenue Series 2017A bonds downgraded to Aa1. The downgrade is a reflection of the university’s increase in debt in relation to its reserves and its Aaa peers. To explore additional credit reports about other muni bonds issued by the State of Missouri, 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.