• Fed’s Fischer indicates that the market liquidity is adequate, but remains cautious with a new administration looking to make changes.

• Janet Yellen announced that the Fed is more than likely to raise interest rates in the near future, causing bond prices to drop and yields to rise.

• Treasury yields and the dollar are all now higher than when they started the year, reflecting expectations that the Trump administration will initiate an aggressive program of fiscal stimulus.

• On Thursday, Fed’s Janet Yellen announced that U.S. central banks should be expecting interest rates to rise in the near future. She mentioned that the interest rate hike will remain gradual, but made no mention of any of the Trump administration’s probable fiscal stimulus plans. The market predicts there is a 98% probability the Fed will raise rates next month, causing bond prices to drop significantly.

• Earlier on Tuesday, Fed’s Vice Chairman Stanley Fischer said that the market liquidity is adequate and should be analyzed in a broader context, especially any new regulatory changes post election, to help preserve a strong U.S. financial system.

• Meanwhile, Fed’s Chairman of Philadelphia Patrick Harker voiced his support of a rate hike increase, especially if the Trump administration plans to enact a fiscal stimulus.

• The Housing Market Index continues to grow at 63, far above the neutral level amount of 50. The West is the leading region, with home builders continuing to lead the area with a measure of 76. The Northeast remains the slowest growing area, with an index of 47. This index continues to show that the housing market demand, a leading indicator for the economy, is growing.

• The Headline Consumer Price Index had a month-over-month change of 0.4% and a year-over-year change of 1.6%. The core inflation measure increased 0.1% on a month-over-month change and a year-over-year change of 2.1%. Both energy and housing prices increased the most in October, and the recent positive trend in CPI can be seen as one of the primary drivers for a near future rate hike. For bond investors, as inflation inches toward the 2% target rate, the likelihood of rate hikes increases, especially impacting the value of longer duration bonds.

• Jobless claims continued to drop, consistent with the trend over the last few months. The most recent measure came in at 235,000 claims, down from 254,000 the week before. This new figure also brings down the 4-week moving average to 253,500, as the labor market and economy continue to show signs of strength. This weekly figure is the lowest jobless claims that has been announced in four decades since 1973, showing signs of better job prospects compared to the start of the year.

• Credit spreads between Treasuries and municipal bonds narrowed this week as municipal yields rose to match Treasuries’ large gains last week. Click here to read our previous week’s market update report. The largest spread is in the 5-year maturity, with Treasuries’ yield 27 bps higher than the municipal equivalent. Longer-term municipal bond prices dropped the most, with 30-year yields now 5 bps higher than the 30-yield Treasury.

• Municipal bond funds posted the biggest outflow in three years with $3 billion, compared to the $63 million inflow from last week. This is most likely due to bond fund investors reallocating to investments that will not be affected when interest rates are expected to rise next month.

• The fourth installment, dated 11/16/2016, issued $185,590,000 of general obligation bonds that are rated Aa3 by Moody’s and AA- by Standard & Poor’s. The bonds are to be allocated to support capital projects in connection with the facilities of the Port Authority and/or purposes of refunding other obligations. To view Moody’s rating reports for other Port Authority of New York and New Jersey bonds, click here.

Upgrade

Moody’s Upgrades Detroit Public Schools, MI to B2; Outlook Stable: The upgrade to B2 reflects the positive progress of the repayment of the school district’s outstanding obligations. To explore other Moody’s reports for muni bonds issued by the city of Detroit, see our Michigan page here. You can learn about the basic concept of general obligation muni bonds and how they differ from project revenue-based muni bonds here.

Downgrade

Moody’s Downgrades Rosemont, IL’s GO to Baa1; Outlook is Negative: With $78 million in Series A and $20 million in Series B general obligation bonds outstanding, the downgrade reflects Rosemont’s significant debt burden and growing risk associated with declining reserve levels and expansion of non-essential enterprise ownership. Check here to explore other Moody’s reports for muni bonds issued by the Village of Rosemont, IL.

Using our Moody’s Report section, find out what other muni bonds were upgraded or downgraded during the week.

We provide this report on a weekly basis. To stay up to date with muni bond market events, remember to return to our News page.