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.
- Treasury yields remained relatively unchanged while muni yields increased across the board.
- Muni bond funds continued to see a third week of inflows.
- Credit spreads between Treasuries and AAA-rated municipal bonds shrunk this week.
- Be sure to review our previous week’s report to track the changing economic situation.
Economy Shows Weak GDP along with Increasing Jobless Claims
- GDP data was released on Friday and reported a weak reading of 0.7% and below the consensus of 1.1%. This was one of the weakest readings since the recession and considerably lower than last quarter’s 2.1%. Lower than expected consumer spending is considered a primary reason for this depressed result.
- U.S. Congress passed a week-long stopgap this week to prevent a government freeze that was due to start at midnight on Friday. This week keeps the government functioning till next Friday. At the same time, this move allows legislators to wrap up negotiations for a $1 trillion spending package.
- New home sales reported a 621,000 reading for March, which is the strongest measure since last July. This surpassed the consensus measure of 588,000 and continues to add to the fact that the U.S. economy is gaining strength in the real estate sector.
- The Bloomberg Consumer Comfort Index reported a measure of 50.8, which is near the eight-year high of 51.0. Consumers continue to remain confident in the economy, due to a strong real estate and labor market.
- Jobless claims data showed an increase of 14,000 this week, bringing the total claim amount to 257,000. This was higher than the consensus estimate of 244,000 but the four-week average dropped to 242,250.
- The International Trade in Goods saw a decline in $64.8 billion, lower than the consensus amount of $65.3 billion. Exports dropped 1.7%, which was caused primarily by consumer goods and vehicles. Imports also fell by 0.7%, which was led by a drop in oil, consumer goods and capital goods.
- Last week, the Fed’s balance sheet decreased by $9.1 billion in assets, bringing the total level to around $4.47 trillion. The weekly decrease was centered in mortgage-backed securities, which fell $7.9 billion.
- During the week, money supply (M2) increased by $30.7 billion, the second weekly increase from last week’s increase of $46.1 billion.
Keep track of economic indicators that may impact the muni market.
Treasuries Show Little Movement While Muni Yields Jump
- Treasury yields showed little movement, with the two-year Treasury yield increased by 1 bps to 1.26%. The 10-year Treasury saw a decrease of 3 bps to 2.28%, while the 30-year Treasury remained flat at 2.95%. On the other hand, municipal yields gained across the board for all maturities. The two-year AAA-rated bonds increased 3 bps and are at 1.01%. The 10-year AAA-rated municipal increased by 10 bps, while the 30-year increased by 12 bps.
- Credit spreads decreased this week, with the largest spread between the five-year Treasury and the AAA-rated municipal decreasing 7 bps to 36 bps. 30-year AAA-rated municipal bonds reversed trend from last week and now yield 7 bps more compared to its 30-year-old 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 | 1.26% | 1.01% | 25 |
5-year | 1.81% | 1.45% | 36 |
10-year | 2.28% | 2.16% | 12 |
30-year | 2.95% | 3.02% | -7 |
Muni Bond Funds Continue Inflow Trend
- For the third week in a row muni bond funds showed an inflow, registering $217 million last week. With no indication that interest rates are rising in the near future, investors continue flocking to municipal bond funds.
State of California Issues Federally Taxable General Obligation High-Speed Passenger Train Bonds
The State of California issued over $1.2 billion in general obligation purpose bonds that are taxable at the federal level but tax-free at the state level. The bonds are rated Aa3 by Moody’s and AA- by both Fitch and S&P and have come out in several issues. The Series 2017A bonds are fixed-rate bonds, the Series 2017B are mandatory-put and Series 2017C are index floating rate.To browse credit reports of other muni bonds issued by the State of California, click here.
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Rating Decision Updates on Muni Bonds
Upgrade
Moody’s Upgrades Lincoln, NH, GO Debt to Aa3: The Town of Lincoln, NH, general obligation debt had $1.1 million of outstanding debt upgraded to Aa3 from A1. The town has had an improving financial position that stems from multiple years of surpluses and a growing tax base. To explore additional credit reports about other muni bonds issued by the State of New Hampshire, click here.
Downgrade
Moody’s Downgrades Hamilton, NY GO debt to A2 from A1: The Village of Hamilton, NY, had its GOLT debt downgraded to A2 from A1. This downgrade of over $11.2 million of bonds was caused by the Village’s declining tax base mixed with multi-year depletions of cash reserves. To explore additional credit reports about other muni bonds issued by the Village of Hamilton, NY, click here.
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