• Treasury yields and municipal yields all declined this week.

• Muni bond fund flows broke its four-week inflow trend this week with large outflows.

• Be sure to review our previous week’s report to track the changing market conditions.

• The current Employment Situation Report came out on Friday, higher than expected. The nonfarm payrolls showed a month-over-month change of 228,000, higher than the consensus of 190,000. Private payrolls were also higher than expected with a month-over-month change of 221,000 versus the expected 184,000. However, unemployment came in as expected at 4.1%.

• The Bloomberg Consumer Comfort Index came in at 52.3, a very strong level. The peak of 53.5 was in August of this year, but the average consumer believes the economy is strong due to a roaring stock market, good employment situation and a rising real estate market.

• The ADP Employment Report came in at 190,000 versus the consensus of 186,000. This is still considerably lower than the October reading of 252,000, which was still affected by the hurricanes.

• Jobless claims decreased by 2,000 this week to a total of 236,000, slightly lower than the consensus amount of 240,000. These measures continue to show that the job market is strong, with very little impact leftover from Puerto Rico. This recent decline made the four-week average decrease slightly to 241,500.

• The Fed’s assets decreased by $1.4 billion this week, bringing the total level to around $4.437 trillion. The weekly decrease is centered in Treasury notes and bonds, which fell $3.1 billion.

• During the week, money supply (M2) increased by $35.1 billion, a reversal of last week’s decrease of $3.7 billion.

Keep track of economic indicators that might impact the muni market.

• Treasury yields were all up this week, with the 2-year Treasury falling 1 bps to now yield 1.79%. The 10-year Treasury yield decreased by 2 bps and is now yielding 2.38%, while the 30-year Treasury yield fell 3 bps and now yields 2.77%. Municipal yields all saw much larger declines this week with the 2-year AAA-rated bond yield falling 3 bps to yield 1.47%. The 10-year AAA-rated bond yield had this week’s largest decline and dropped 16 bps to 1.99%, while the 30-year yield saw a decrease of 13 bps to yield 2.63%.

• Credit spreads remained increased this week, with the largest spread between the 5-year Treasury and the AAA-rated municipal bond increasing 6 bps this week, and is now at 48 bps. The spread between the 30-year securities increased by 10 bps this week and now stands at 14 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.

• After four consecutive weeks of inflows, muni bonds saw large outflows of $935 million this week.
   

The Illinois State Toll Highway Authority had this week’s largest issuance with $300 million in Toll Highway senior revenue bonds, 2017 Series A. The bonds are used for capital improvements for the Toll Highway, which consists of 296 miles of limited highway access in twelve counties in the northern part of Illinois. The bonds are rated AA- by Fitch, Aa3 by Moody’s and AA- by S&P. To browse credit reports of other muni bonds issued by the State of Illinois, click here.

Get immediate access to all detailed credit reports from Moody’s in our Research section by becoming a Premium member.

Upgrade

Moody’s Upgrades East Hampton UFSD, NY to Aaa; Assigns Aaa to $51.8 GOs; Outlook Stable: The East Hampton Union Free School District of New York had over $51 million of its outstanding general obligation bonds. The area has a very large and affluent tax base and strong financial reserves, which warranted the upgrade from Aa1 to Aaa. To explore additional credit reports about other muni bonds issued by the State of New York, click here.

Downgrade

Moody’s Downgrades Harrison Fire Protection District 2, NY’s GO to Aa3; Assigns Aa3 to Series 2017: The Harrison Fire Protection District No. 2 had its outstanding general obligation bonds downgraded to Aa3 from Aa2. At the same time, the area had $800,000 of its Public Improvement serial bonds, Series 2017 rated at Aa3. The area has seen a continued decline in reserves, although the debt and pension burdens are manageable. To explore additional credit reports about other muni bonds issued by the State of 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 here.