MunicipalBonds.com provides information regarding the performance of muni bonds for the past week in comparison with Treasury yields, as well as details regarding the net inflow in the muni market.
The overall market rose pretty well during the last week of January after the previous week’s turmoil. However, Treasury yields declined across the curve last week.
There was also a notable upgrade to East Whiteland, PA’s general obligation bond by Moody’s, the details of which are provided below. Also, we provide a quick outlook on Puerto Rico’s bond market performance.
Full Week Bond Market Summary for January 25-29
- Treasury yields declined last week.
- The high-yield municipal bond market continues with strength.
- The Fed is watching the global market and economy closely before raising rates further.
- The Bank of Japan has implemented a negative interest rate policy.
- Puerto Rico unveiled a plan on Monday to cut its debt load by 46%.
Detailed Report
- 5- and 10-year Treasuries declined the most last week, by 15 and 13 basis points, respectively. The 10-year yield closed below 2% for the first time since April 2015.
- The yield curve between 5- and 30-year Treasuries is the steepest since October 2015.
- The municipal market mobilized by the end of the last week of January.
- New issuances of muni bonds were at $5.5 billion last week.
- Fund flows totaled $595 million.
- This week’s new issuance is light at $5.7 million; historically, February has been a month with low coupon money to reinvest.
- The high-yield muni bond market still continues strong.
- Fund flows for high-yield muni bonds were at $221 million last week.
- Fund inflows over the last six weeks have totaled $1.75 billion.
- As predicted, last week’s Fed meeting concluded with the decision to continue monitoring global economic and financial developments before raising rates further.
- The Bank of Japan surprised the markets on Friday by joining the less-than-zero club of economies, embracing a policy of negative interest rates. Financial institutions are now required to pay the central bank to park some of their cash beyond required reserve levels.
- Puerto Rico’s new debt repayment plan, announced on Monday, is to reduce its $49.2 billion of debt by about 46%, to $26.5 billion, by offering creditors payout reductions under a new, so-called “base bond” with better legal protections.
- There has been much speculation in recent weeks about whether the global economy is about to experience a recession due to an unprecedented $29 trillion in corporate debt. Global economists and analysts are closely monitoring the situation and possible effects of such a catastrophic event.
Moody’s Upgrade/Downgrade Ratio
Upgrades:
East Whiteland, PA’s General Obligation:
Moody’s Investors Service has upgraded East Whiteland, PA’s $6.2 million general obligation bonds, Series of 2016 to Aa1. The upgrade to Aa1 reflects the township’s large tax base with above-average wealth and strong financial position, despite moderate reliance on economically sensitive revenues.
Downgrades:
Chicago Board of Education, IL’s General Obligation:
Moody’s Investors Service has downgraded the rating of the Chicago Board of Education, IL’s $5.5 billion Moody’s-rated general obligation (GO) debt to B2 from B1. The downgrade to B2 reflects the district’s increasingly uncertain liquidity position and acute need for market access to support ongoing operations.
Treasury Notes Yield Report
| Year | Yield | +/- BPS in Week | +/- BPS in Month |
|---|---|---|---|
| 2-year | 0.78% | -10 | -27 |
| 5-year | 1.33% | -15 | -43 |
| 10-year | 1.92% | -13 | -35 |
| 30-year | 2.74% | -8 | -27 |
Municipal Index Curve Yields
| Year | Yield | +/- BPS in Week | +/- BPS in Month |
|---|---|---|---|
| 2-year | 0.68% | -2 | -11 |
| 5-year | 1.00% | -5 | -26 |
| 10-year | 1.71% | -4 | -21 |
| 30-year | 2.75% | -1 | -7 |
Yield Ratios: Municipal Bonds vs. Treasury Bonds
| Yield Ratios | Ratio (%) |
|---|---|
| 10-year AAA Municipal vs. Treasury | 88% |
| 30-year AAA Municipal vs. Treasury | 100% |
| High-Yield Municipal vs. High-Yield Corporate | 73% |
Further Reading
How to Analyze Muni Bond Risks takes a look at some common techniques to analyze the risks of both general obligation bonds and revenue bonds issued by municipalities.
