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 across all maturities dropped, with the exception of the 2-year Treasury bond.
- Muni bond funds continued to see a sixth week of inflows.
- Credit spreads between the 30-year Treasuries and AAA-rated municipal bonds widened to the point at which the Treasury now yields 2 bps higher than its municipal counterpart.
- Be sure to review our previous week’s report to track the changing economic situation.
Strong Job Reports Continue to Boost Economy
- The Housing Market Index (HMI) came in 2 points higher than consensus at 70. This was higher than expected for the month of May, led by new home sales.
- Jobless claims data declined again this week by 4,000, bringing the total to 232,000. The labour market remains strong with this measure continuing to be lower than the consensus amount of 240,000. This also brings down the four-week average to 240,750.
- As a result of labour market strength, the Bloomberg Consumer Comfort Index increased slightly by 0.5 points last week to 50.2.
- Cleveland Fed President Loretta Mester spoke on Thursday and repeated her opinion that the Fed should continue with the interest rate hikes now that the economy is nearing full employment and inflation is near 2%.
- Last week, the Fed’s balance sheet decreased by $6.4 billion in assets, bringing the total level to around $4.46 trillion. The weekly decrease is centered in other assets, which fell $12.7 billion and offset a $9.1 billion rise in mortgage-backed securities.
- During the week, money supply (M2) decreased by $14.8 billion, a significant reversal from last week’s $35.4 billion increase.
Keep track of economic indicators that may impact the muni market.
Long-Term Municipal Yield Drops to Narrow Credit Spread
- Almost all bond maturity yields fell this week, with the exception of the 2-year Treasury. The 2-year Treasury remained unchanged and continued to yield 1.29%. The 10-year Treasury yield decreased by 8 bps to 2.25%. The 30-year Treasury yield dropped 9 bps and now yields 2.90%. Municipal yields showed more of a decline, with the two-year AAA-rated bonds dropping 5 bps to 0.93%. The 10-year AAA-rated bonds dropped 10 bps to 2.02% and the 30-year AAA-rated bonds dropped 11 bps to 2.88%.
- Credit spreads showed little movement, with the largest spread between the 5-year Treasury and the AAA-rated municipal remaining at 47 bps. As the 30-year AAA-rated municipal bond yield dropped by 11 bps this week, the spread with its Treasury counterpart increased, and currently stands at 2 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.
Credit Spread
| Maturity | Treasury Yield | Muni Yield | Spread (in BPS) |
|---|---|---|---|
2-year | 1.29% | 0.93% | 36 |
5-year | 1.79% | 1.32% | 47 |
10-year | 2.25% | 2.02% | 23 |
30-year | 2.90% | 2.88% | 2 |
Muni Bond Funds See Inflows for Six Weeks
- For the sixth week in a row, municipal bond funds show inflows that amounted to $327 million this week.
The Regents of the University of California Issues 2017 Revenue Bond Series
The Regents of the University of California issued over $1.135 billion in General Revenue Bonds. There are three series: over $449 million in Series AV; over $185 million in Series AW; and, $500 million in Series AX. The AW and AX series are both taxable, while the AV series is not. The bonds are rated Aa2 by Moody’s and AA by both Fitch and S&P. To browse credit reports of other muni bonds issued by Regents of the University of California, click here.
You can get immediate access to all of the detailed credit reports from Moody’s from our Research section by becoming a premium member.
Rating Decision Updates on Muni Bonds
Upgrade
Moody’s Upgrades Monroe County, TN’s GOULT to Aa3 from A1: The Monroe County, Tennessee GOULT debt was upgraded to Aa3 from A1, affecting $30.9 million. The Aa3 rating reflects the county’s growing tax base, which has helped build up the financial reserves. To explore additional credit reports about other muni bonds issued by the State of Tennessee, click here.
Downgrade
Moody’s Downgrades Passaic County Community College (NJ) to A3; Outlook Negative: The Passaic County Community College in New Jersey had $13 million of outstanding revenue bonds downgraded from A2 to A3, with a negative outlook. The College has seen declining enrollment, which has caused weakening cash flow and constrained revenue growth. To explore additional credit reports about other muni bonds issued by the State of New Jersey, 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.
