• Municipal yields decrease as the market begins to brace itself for this week’s Fed meeting, in which interest rates are expected to be raised.

• Fed Chairs Dudley and Bullard both indicated Trump’s expected fiscal stimulus program.

• Muni bond funds continue to see four week long outflows, totalling over $9.3 billion.

• Be sure to review our previous week’s report to track the changing economic situation.

• New York Fed Chair William Dudley spoke about how the Trump Presidency brings uncertainty to the country’s economic outlook but is still too soon for the Fed to adjust its plan for a gradual rate hike. With bond yields rising over the last month, Dudley does not seem concerned about the current market conditions, and attributes them to the expectations of more government spending that should boost the economy.

• The Fed Chair of St. Louis, James Bullard, spoke on Monday about the incoming President’s expected fiscal stimulus plan, and mentioned that a properly organized infrastructure boost and an overhaul to the tax code should help the economy from a longer-term perspective. However, he also mentioned that this incoming plan should not be considered a critical stimulus package, as the jobless claims and other economic data does not warrant such action.

• The Gallup U.S. Consumer Spending measure reported daily spending measures at $98 in November, up from the October measure of $93. This is considerably higher than the average of $92 and the highest reading since the index’s creation in 2008. This can be attributed to a strengthening labor force, stronger economy and lower levels of personal debt throughout the country.

• The International Trade deficit continued to widen and measured in at -$42.6 billion for October. This higher-than-expected measure reflected a decline in exports by 1.8% and an 1.3% rise in imports. The trade gap between China and the U.S. narrowed by $1.4 billion to $31.1 billion, as President Trump mentioned several times his plans to withdraw from the Trans-Pacific Partnership (TPP) and to restructure America’s trade rules with China.

• Jobless claims fell 10,000 from the week prior, to 258,000, and continued the trend of five double-digit swing weeks for the measure. The labor market continues to show strength as the four-week moving average reached 252,500, although the number only increased by 1,000 over the previous week and is well below the psychological level of 300,000.

• The Fed Balance Sheet showed an increase in assets of $2.3 billion, leaving total assets at $4.45 trillion. This increase of assets is carefully calculated by the Fed as an attempt to stabilize interest rates before next week’s expected rate hike. Explore our Muni Market Glossary to familiarize yourself with various terminologies used in the market.

• Treasury yields increased across all maturities, while municipals did the opposite and saw yields fall. The biggest move came in the 30-year maturity ranges, with Treasury yields increasing 7 bps and municipals decreasing 20 bps from the week prior. This drop in municipal yields is attributed to last week’s rally, in which municipal bonds dropped significantly in price over the comparable Treasury. Last week’s 30 bps spread between the 30-year municipal yield over Treasury has shrunk to only 1 bps for this week.

• Municipal fund flows continued the massive outflow trend for the fourth straight week, with over $2.09 billion for the week and over $9.3 billion over the last four weeks. Again, investors continue the trend of pulling out of bond funds and into investments that are less likely to be affected by rising interest rates.

• The city issued $148 million in bonds that were rated AA by Standard & Poor’s and Aa3 with Moody’s. The bonds are considered federally taxable but still maintain tax-exemption status for residents of California.

Upgrade

Moody’s Upgrades the City of Marshall, MN’s Combined Utility Enterprise Revenue Bonds to A2: The A2 rating applies to $4.2 million in outstanding utility revenue debt. The utility’s satisfactory debt service coverage, stabilizing financial position and strong legal provisions were all factors for the recent upgrade. To explore additional credit reports about other muni bonds issued by the state of Minnesota, click here.

Downgrade

Moody’s Downgrades Dallas, TX GOLT to A1; GOLT and Other Securities Under Review for Possible Downgrade: The downgrade of the $1.6 billion of GOLT debt is based on the city’s ongoing challenges surrounding its poorly funded public safety pension plan and a sizable potential liability associated with a back-pay referendum lawsuit. Click here to browse through credit reports of other Texas-based muni bond issues.

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, return to our News page.