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 and municipal yields saw gains in the short term and declines in the long-term issues.
- Muni bond fund flows turned negative this week.
- Be sure to review our previous week’s report to track the changing market conditions.
Jerome Powell Announced as New Fed Chair
- After weeks of indecision, President Trump announced that Jerome Powell will be the new head of the Federal Reserve. Current Fed Chair Janet Yellen will serve out the remainder of her term until February 3. Jerome Powell has been a Fed governor since 2012, and will begin his four-year term as the new Fed chair if the Senate approves the appointment.
- On Friday, the employment situation came in much better than expected as the nation is now normalizing after seeing an increase in employment from displaced people from the hurricanes. Nonfarm payrolls saw a month-over-month change of 261,000, much lower than the expected rebound of 325,000. Private payrolls saw a month-over-month change of 252,000, also lower than the expected rebound of 320,000. The unemployment rate was also lower than consensus and reported a level of 4.1%, which marks a new seventeen-year low.
- The ADP Employment Report came in considerably higher than the expected amount, reporting an increase of 235,000 versus a consensus of 210,000.
- Jobless claims decreased by 5,000 this week to a total of 229,000, slightly lower than the consensus amount of 235,000. The four-week average fell to 232,500 from 239,750.
- The Fed’s assets decreased by $5.2 billion this week, bringing the total level to around $4.456 trillion. The weekly decline is centered in Treasury notes and bonds, which fell $6.1 billion.
- During the week, money supply (M2) increased by $4.9 billion, a reversal of last week’s large decline of $22.3 billion.
Keep track of economic indicators that might impact the muni market.
Short-Term Yields Gain, While Longer Term Fall
- Treasury yields all fell this week, with the exception of the 2-year Treasury. which increased by 2 bps to yield 1.61%. The 10-year Treasury yield fell by 8 bps and is yielding 2.33%. The 30-year Treasury yield decreased the most this week, falling by 11 bps, and now yields 2.81%. Municipal yields also fell, with the exception of the 2-year AAA-rated bond yield, which increased by 3 bps to yield 1.12%. The 10-year AAA-rated bond yield decreased 2 bps to 2.02%, while the 30-year yield saw a decline of 6 bps to yield 2.84%.
- Credit spreads shrank this week, with the largest spread between the 5-year Treasury and the AAA-rated municipal bond decreasing by 6 bps to settle at 52 bps. However, the spread between the 30-year securities grew slightly and now stands at 3 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 | 1.61% | 1.12% | 49 |
5-year | 1.99% | 1.47% | 52 |
10-year | 2.33% | 2.02% | 31 |
30-year | 2.81% | 2.84% | -3 |
Muni Bond Funds Return to Outflows
- After two weeks of inflows, muni bond funds saw outflows of $506 million this week.
North Texas Tollway Authority Issues Revenue and Refunding Bonds
The North Texas Tollway Authority System Revenue and Refunding Bonds had this week’s largest issuance, of over $2.5 billion bonds. There are two issues, over $1.743 billion in First Tier Series 2017A and over $765 million in Second Tier Series 2017B. The North Texas Tollway Authority (NTTA) is an organization that maintains and operates toll roads, bridges, and tunnels in the North Texas area. The bonds are rated A1 by Moody’s and A by S&P. To browse credit reports of other muni bonds issued by Texas, click here.
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Rating Decision Updates on Muni Bonds
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Moody’s Upgrades Lockport Township Park District, IL’s GOLT Debt to Aa1: The Lockport Township Park District of Illinois upgraded $3.3 million of general obligation limited debt to Aa1 from Aa2. The area has improved its financial position thanks to a growing level of reserves and manageable debt obligations. To explore additional credit reports about other muni bonds issued by the State of Illinois, click here.
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Moody’s Downgrades Cypress Creek Utility District, TX’s GOULT to Baa1; Assigns Stable Outlook: The Cypress Creek Utility District in Texas had $1.4 million of its outstanding debt downgraded to Baa1 this week. The area has recently experienced a drag on its economy and property values due to the aftermath of Hurricane Harvey.
We provide this report on a weekly basis. To stay up to date with muni bond market events, return to our News page.
