• Treasury and municipal yields see mostly declines this week.

• Muni bond funds registered second consecutive week of outflows.

• Be sure to review our previous week’s report to track the changing market conditions.

• The Consumer Price Index came in lower than consensus, with a month-over-month change of 0.5%, 1 bps lower than estimates. CPI also came in 1 bps lower than estimates on a year-over-year basis at 2.2%.

• Fed Chair Janet Yellen spoke Sunday, saying low inflation is the biggest surprise of the year. However, she also stated she believes inflation will pick up next year as global interest rates should continue to rise. Inflation remains below the Fed’s target goal of 2.0%, and as of August, inflation grew by 1.3% after removing volatile food and fuel.

• The Job Openings and Labor Turnover Survey (JOLTS) came in at 6.082 million in August, which was lower than the consensus of 6.160 million. Hirings came in far behind at 5.430 million, which may be an indication that the economy is nearing full employment.

• Jobless claims fell by 15,000 this week, below the consensus amount of 252,000 to report at 243,000. The negative effects of the hurricanes seem to be dissipating from the weekly reports, but Puerto Rico’s claims after Hurricane Maria have most likely not been factored in.

• Dallas Fed President Robert Kaplan spoke on Tuesday and mentioned that the Fed should keep an open mind about removing accommodation in the upcoming meetings. He feels globalization and technology are muting inflation, even though September’s jobs data showed the economy to be nearing full employment.

• The Fed’s assets decreased by $1.0 billion this week, bringing the total level to around $4.459 trillion. The weekly decrease is centered in central bank liquidity swaps, which declined by $3.6 billion to offset an increase of $2.6 billion in other assets.

• During the week, money supply (M2) increased by $12.2 billion, a continuation from last week’s increase of $15.4 billion.

Keep track of economic indicators that might impact the muni market.

• Treasury yields declined this week, with the exception of the 2-year Treasury, which increased by 1 bps to yield 1.51%. The 10-year Treasury yield declined 7 bps and is yielding 2.29%. The 30-year Treasury yield also declined 7 bps and now yields 2.82%. Municipal yields all decreased this week. The 2-year AAA-rated bond yield decreased 1 bps to yield 1.03%. The 10-year AAA-rated bond yield increased 5 bps to 1.98%, while the 30-year yield dropped this week by 7 bps and is yielding 2.83%.

• Credit spreads saw minimal movement again this week, with the largest spread between the 5-year Treasury and the AAA-rated municipal bond decreasing by 1 bps to settle at 55 bps. The spread between the 30-year securities remained the same at 1 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.

• Muni bond funds continued outflows of $60 million this week, after last week’s $212 million of outflows.

The largest issuance of the week comes from the Massachusetts Bay Transportation Authority, which issued over $271 million of Subordinated Sales Tax Bond Anticipation Notes, Series 2017. The project is meant for the MBTA, which is the oldest and fifth-largest transit system in the country, operating subways, trolleys, buses and commuter rail services to over 1.3 million passenger trips per day. The bonds are rated Aa3 by Moody’s and AA by S&P. To browse credit reports of other muni bonds issued by Massachusetts, click here.

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Moody’s Assigns Aa2 to City of Goodyear’s (AZ) GO Bonds; GOLT Bonds Upgraded to Aa3; Stable Outlook: The city of Goodyear in Arizona had $25 million of its general obligation limited tax improvement bonds upgraded to Aa3 from A1. The city has a sizeable $8 billion tax base with prudent financial management and larger-than-average reserves. To explore additional credit reports about other muni bonds issued by the State of Arizona, click here.

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Moody’s Downgrades Oak Lawn, IL’s GO to Baa2; Outlook Remains Negative: The village of Oak Lawn in Illinois had $57 of its $79 million outstanding general obligation unlimited tax (GOULT) bonds downgraded to Baa2 from Baa1. The village has shown a growing pension burden and a weak financial position that caused the downgrade, even though the village has a broad flexibility to raise local taxes. To view more Illinois bonds, click here.

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