Municipal Bonds Weekly Market Report: November 10

• The U.S. Treasury yields rose with a high probability of market pricing rate hike in December.
• Municipal yields rose but lagged significantly resulting lowest 10-year AAA GO Ratio of 2015.
• Municipal funds had net fifth consecutive week of net inflows.
• Moody’s reported the Q3 2015 upgrades exceeded downgrades due to California tax allocation bond.
• PREPA restructuring plan accepted by three creditor groups.

Detail Report:

Treasury moved higher from Monday to Thursday last week until the U.S. labor report was released on Friday, which caused it to fall. Total non-farm payroll employment increased by 271,000 in October, and the unemployment rate essentially was unchanged at 5%, per the U.S. labor report.

The 10-year Treasury in November is at a level as it was in mid-July when global economic data and emerging market volatility were pricing in a September Fed Funds rate hike. The lows in mid-October 10-year yields are +40 bps, and 5-year yields are +50 bps. The strong labor report has set the intuitions of a December FOMC rate hike unless any market fussiness gets in its way.

Municipal yields also rose significantly but lagged Treasury’s with the resulting ratio, at 92.7.

The 30-Day Bloomberg Supply currently is at $10.2 billion with a slight change from the previous week. YTD average $10.7 billion, and the 12-month average at $10.6 billion.

Treasury Notes Yield Report:

Year	Yield %	+/- BPS
2	0.89%	+15.89
5	1.74%	+21.3
10	2.33%	+18.5
30	3.09%	+16.4

Bloomberg Municipal Index Curve Yields:

Bloomberg Municipal Index Curve Yields were lower last week.
GO Yields are rated as “AAA.”

Year	Yield	+/- BPS
2	0.56%	+4
5	1.29%	+7
10	2.15%	+8
30	3.17%	+2

The Ratio of 10-year GO debt to 10-year Treasury yields fell to 92.7 on Friday from the previous Friday’s ratio of 96.7.
The year-to-date average is 102.3, and the 12-month average is 101.5.

Bond Buyer Index Table:

Index	Yield %	1 Week	+/- BPS	1 Month	+/- BPS
Bond Buyer 20 GO Index	3.69%	3.67%	+2.00	3.71%	-2.00
Bond Buyer 11 GO Index	3.20%	3.18%	+2.00	3.23%	-3.00
Bond Buyer 25 Revenue Index	4.05%	4.05%	0.00	4.10%	-5.00

AAA Muni Ratios and Spreads by Maturity:

11-Nov	Yield To Maturity		0% Tax Rate		35% Tax Equivalent
Maturity	AAA GO	Treasury	Spread	Ratio	Spread	Ratio
1	0.28%	0.43%	-15.1	65.10%	0.0	100.10%
2	0.57%	0.89%	-32.1	63.90%	-1.5	98.30%
3	0.85%	1.23%	-38.5	68.80%	7.1	105.80%
4	1.08%	1.58%	-49.3	68.70%	9.0	105.70%
5	1.30%	1.75%	-45.0	74.30%	25.0	114.30%
7	1.70%	2.10%	-40.6	80.70%	50.9	124.20%
10	2.16%	2.34%	-18.2	92.20%	98.0	141.90%
15	2.54%	2.60%	-5.8	97.80%	130.9	150.40%
20	2.84%	2.79%	5.3	101.90%	158.2	156.80%
25	3.05%	2.94%	10.9	103.70%	174.9	159.50%
30	3.17%	3.09%	8.3	102.70%	179.2	158.00%

Moody’s Upgrade/Downgrade Ratio:

Moody’s reported the Q3 2015 upgrades exceeded downgrades.
The key player for the upgrade was the California tax allocation bonds, because of their new rating methodology. In Q3, there were 47 out of 172 upgrades with the California tax allocation bonds amounting to $61 billion, and 132 downgrades amounting to $45 billion.

Upgrades:
Morgan Hill Unified School District’s general obligation bonds: Moody’s Investors Service has upgraded the rating on the Morgan Hill Unified School District’s general obligation bonds to Aa1 from Aa2. We also have assigned Aa1 to the 2016 General Obligation Refunding Bonds. The rating on the district’s outstanding COPs has been upgraded to Aa3 from A1. The new GO bonds have an expected par value of $40 million. The total debt affected by this rating action is $96.0 million.

Downgrades:
Accudyne Industries Borrower S.C.A.’s: Moody’s Investors Service (Moody’s) downgraded all ratings of Accudyne Industries Borrower S.C.A.’s (Accudyne), including the Corporate Family Rating (CFR) to Caa1 from B2, the secured debt rating to B3 from B1, and the senior unsecured debt rating to Caa3 from Caa1. The rating outlook is stable.

Puerto Rico:

• As per the announcement on Thursday, three out of four creditors agreed to a formal debt restricting proposal made by PREPA.
• The S&P Municipal Bond Puerto Rico Index finished at 159.3 on Friday vs. 159.4 at the end of the previous week, +0.0%. Year-to-date the index is -6.5%.