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 yields saw slight declines in most of the maturities.
- Muni bond funds see second week of inflows in a row.
- Credit spreads between Treasuries and AAA-rated municipal bonds remained relatively unchanged.
- Be sure to review our previous week’s report to track the changing economic situation.
Better Than Expected GDP Data Amid Strong Consumer Confidence
- On Wednesday, British Prime Minister Theresa May triggered Article 50, starting the two-year process of Britain’s departure from the European Union. Since the announcement in mid-2016, the sterling has plummeted 11% against the U.S. dollar and has continued to see its lowest levels since 1985.
- Dallas Fed President Robert Kaplan spoke on Thursday saying he believes the Fed will raise rates two more times during 2017. This matches what most analysts and other Fed members have indicated, based on steady economic data for the rest of the year.
- GDP data was released on Thursday and came in slightly higher than expected at 2.1% on a quarter-over-quarter basis. This is an increase over last quarter’s 1.9% measure and higher than the consensus estimate of 2.0%. A bump up in consumer spending, which is up 3.5% since last quarter, was one of the reasons behind this.
- Consumer confidence was reported on Tuesday at a level of 125.6, which is the highest level since December 2000. This is significantly above the consensus estimate of 113.8 and shows strong consumer confidence because of an improving job market and bullish stock market.
- Last week, the Fed’s balance sheet decreased by $8.6 billion in assets, bringing the total level to around $4.47 trillion. The weekly decrease is due to a $8.5 billion decline in mortgage-backed securities.
- During the week, money supply (M2) increased by $2.5 billion, a much more moderate increase from last week’s $55 billion.
- Jobless claims data showed a moderate decline of 3,000 jobs this week, bringing the total claim amount to 258,000. This surpassed the consensus estimate of 247,000 and brings up the four-week average to 254,250. Even though the recent measures have been higher than last month’s all-time lows, the job market still shows signs of strength.
- Keep track of economic indicators that may impact the muni market.
Bond Yields Continue to Decline
- Treasury yields declined slightly across all maturities except in the longer term. The two-year Treasury yield decreased by 1 bps to 1.25%. The 10-year Treasury saw a modest decline of 2 bps to 2.39%. The 30-year Treasury remained flat for the week and continues to yield 3.01%. Municipal yields declined across all maturities, with the two-year AAA-rated bonds decreasing 1 bps to 1.03%. The 10-year AAA-rated municipal decreased by 4 bps while the 30-year decreased by 3 bps.
- Credit spreads remained relatively unchanged, with the largest spread still remaining between the five-year Treasury and the AAA-rated municipal at 34 bps. The spread between the 30-year AAA-rated municipal and the 30-year Treasury shrank 3 bps from the week prior, but the muni yield still remains 6 bps higher than its treasury counterpart.
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.
Credit Spread
| Maturity | Treasury Yield | Muni Yield | Spread (in BPS) |
|---|---|---|---|
2-year | 1.25% | 1.03% | 22 |
5-year | 1.92% | 1.58% | 34 |
10-year | 2.39% | 2.26% | 13 |
30-year | 3.01% | 3.07% | -6 |
Muni Bond Funds See Second Week of Inflows
- For the second week in a row, municipal bond funds showed inflows of $124 million. With the Fed raising rates a few weeks ago and the bond market stabilizing, investors seem to be taking interest in muni bonds again.
Washington Health Care Facilities Authority Issues Variable Rate Revenue Bonds
Washington Health Care Facilities Authority issued over $177 million in variable rate revenue bonds with both the 2017B and 2017C issues. The bonds are used for the Fred Hutchinson Cancer Research Center and are rated A3 by Moody’s and A by S&P. To browse credit reports of other muni bonds issued by the State of Washington, click here.
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Rating Decision Updates on Muni Bonds
Upgrade
Moody’s Upgrades to Aaa from Aa1 Mill Valley SD, CA’s Outstanding GO Bonds: Over $75 million general obligation bonds of the San Francisco–based Mill Valley School District were upgraded to Aaa from Aa1. The upgrade reflects the area’s improved financial profile and better-than-expected growth over the last five years. To explore additional credit reports about other muni bonds issued by the State of California, click here.
Downgrade
Moody’s Downgrades to Baa1 from A1 Village of Valley Stream, NY GOLT Debt; Outlook is Negative: The Village of Valley Stream in New York had $4.73 million of its various purpose serial bonds get a downgrade to Baa1. The area’s wealth profile and increasing debt burden are no longer consistent with the profile of an A-rated issue. Moody’s also downgraded the area’s GOLT debt to Baa1, affecting over $29 million in outstanding debt. To explore additional credit reports about other muni bonds issued by the Village of Valley Stream in New York, 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.
