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.
- Treasuries gained across all maturities while municipals showed little movement.
- Muni bond funds returned to inflows this week after seeing outflows last week.
- Be sure to review our previous week’s report to track the changing economic situation.
BREXIT Woes and Continued Strength in U.S. Labor Market
- The UK election produced a hung parliament on Friday, which put the future of Prime Minister Theresa May in question. May had no intention of resigning, but her plan for calling an early decision has backfired. This caused currency markets to decline, especially the British pound, with fears of making the Brexit negotiations more difficult.
- Back at home, the U.S. JOLTS report came in well over the expected amount at 6.044 million in April. The consensus amount was 5.725 million. On the other hand, hirings came in at 5.051 million – much lower than March 5’s 304 million figure. This number reflects the skill scarcity in the job market, which indicates that there are still job openings available, just not qualified applicants to fill them.
- The Bloomberg Consumer Confidence Index fell slightly to 49.9 from the prior reading of 51.2. However, this measure is still a good indication of the strength of the average consumer’s optimistic view of the economy.
- Jobless claims decreased by 10,000, bringing the total to 245,000 for the week. This was slightly higher than the consensus amount of 241,000 but down from last week’s 255,000 measure. The four-week average increased slightly to 242,000, showing continued strength in the labor market.
- Last week, the Fed’s balance sheet increased by $2.5 billion in assets, bringing the total level to around $4.462 trillion. The weekly increase is centered in other assets, which rose $2.6 billion.
- During the week, money supply (M2) decreased by $3.4 billion, a correction from last week’s massive increase of $37.7 billion.
Keep track of economic indicators that may impact the muni market.
Treasury Yields Gain, While Munis Show Little Movement
- All Treasury yields gained this week, with the 2-year increasing 4 bps to a yield of 1.33%. The 10-year Treasury yield increased 4 bps this week and is now yielding 2.20%. The 30-year Treasury yield increased by 5 bps to 2.86%. Municipal yields showed minimal movement, with the 2-year AAA-rated bonds yield increasing by 1 bps to 0.89%. The 10-year AAA-rated bond yields remained flat, while the 30-year yield increased by 1 bps to 2.72%.
- Credit spreads increased, with the largest spread increasing 5 bps between the 5-year Treasury and the AAA-rated municipal; it now stands at 55 bps. With improving Treasury yields, the spread between the 30-year securities widened by 4 bps to stand 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.
Credit Spread
| Maturity | Treasury Yield | Muni Yield | Spread (in BPS) |
|---|---|---|---|
2-year | 1.33% | 0.89% | 44 |
5-year | 1.77% | 1.22% | 55 |
10-year | 2.20% | 1.86% | 34 |
30-year | 2.86% | 2.72% | 14 |
Muni Bond Funds Return to Inflows in a Big Way
After snapping the seven-week inflow trend by having outflows of $116 million last week, muni bond funds saw $871 million of inflows this week.
State of Connecticut Health and Educational Facilities Authority Issues Revenue Bonds
The State of Connecticut Health and Educational Facilities Authority issued over $224 million of Yale University Revenue Bonds. The Series 2017B issue is meant to refund all the Authority’s Series T-1 and Series X-3 issues. The bonds are rated AAA by S&P. To browse credit reports of other muni bonds issued by the State of Connecticut, click here.
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Rating Decision Updates on Muni Bonds
Upgrade
Moody’s Upgrades Guadalupe Blanco River Auth.’s (TX) Debt to Aa3: The Guadalupe Blanco River Authority of Texas had its debt upgraded by Moody’s to Aa3. This upgrade is for the combined contract revenue, subordinate water resources division revenue and the surplus project revenue bonds series 2007A and 2007B. The area has shown a stronger credit quality and consistent financial performance that warranted an upgrade of over $13 million in debt. To explore additional credit reports about other muni bonds issued by the State of Texas, click here.
Downgrade
Moody’s downgrades Governors State University’s (IL) UFS to Ba3 and COPs to B1; outlook negative: The Governors State University of Illinois had its University Facilities System (UFS) Revenue Bonds downgraded to Ba3 from Ba1. This downgrade affects $6 million of debt outstanding and is due to the state’s reduction of funding and thin liquidity. To explore additional credit reports about other muni bonds issued by the State of Illinois, 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.
