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 and municipal yields all saw large gains this week.
- Muni bond funds continue to gain assets with a fourth consecutive week of inflows.
- Be sure to review our previous week’s report to track the changing market conditions.
As Expected, Fed Keeps Rates Level
- In the first Federal Open Market Committee meeting of 2018, the Committee had a unanimous vote to not increase interest rates. The federal funds target rate remains at 1.25 to 1.50%.
- The Employment Situation Report was released on Friday and nonfarm payrolls saw a month-over-month increase of 200,000, higher than the consensus of 175,000. Private payroll also saw a month-over-month increase of 196,000, higher than the consensus of 172,000. The unemployment rate came in as expected at 4.1%.
- The ADP employment figure came in at 234,000, considerably higher than the 195,000 consensus. Although ADP’s report is running above government data, both measures still reflect a strong January employment data.
- Jobless claims decreased by 1,000 this week to a total of 230,000, which is lower than the consensus amount of 235,000. The four-week average dropped to 234,500. Claims had been stable through most of last year at about the 240,000 level before the hurricane season upended the data beginning in late August. However, the data continues to indicate a strong job market.
- The Fed’s assets decreased by $22.1 billion this week. This brought the total asset base to around $4.419 trillion, down $41.0 billion from the beginning of the balance sheet unwinding in October 2017.
- During the week, money supply (M2) increased by $10.9 billion, a continuation of last week’s of $15.6 billion increase.
Keep track of economic indicators that might impact the muni market.
Treasury and Municipal Yields See Huge Gains
- Treasury yields were all up this week, with the largest gains witnessed in the longer-term instruments. The 2-year Treasury increased by 2 bps to now yield 2.14%. The 10-year Treasury yield increased by 18 bps and now yields 2.84%, which is the highest level since 2014. The 30-year Treasury yield also increased by 18 bps and now yields 3.09%. Municipal yields saw even larger gains, with the 2-year AAA-rated bonds increasing 4 bps to yield 1.58%. The 10-year AAA-rated bond yield had the week’s largest increase and gained 25 bps to 2.48%. The 30-year yield also saw a large gain of 18 bps to yield 3.04%.
- Credit spreads were mixed this week, with the largest spread between the 5-year Treasury and the AAA-rated municipal bond decreasing to 66 bps. Meanwhile, the spread between the 30-year securities remained unchanged and is still at 5 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 | 2.14% | 1.58% | 56 |
5-year | 2.59% | 1.93% | 66 |
10-year | 2.84% | 2.48% | 36 |
30-year | 3.09% | 3.04% | 5 |
Muni Bond Funds See Fourth Week of Inflows
Municipal bond funds saw inflows for the fourth week in a row, increasing by $253 million, after an increase of $799 million in the previous week.
Public Energy Authority Of Kentucky Gas Supply Issues Revenue Bonds
The largest issue of the week was from the Public Energy Authority Of Kentucky, which issued over $833 million of gas supply revenue bonds. The proceeds of the bonds are being used to prepay a 30-year supply of natural gas, fund a deposit into the Commodity Swap Reserve Account and fund a deposit into the Capital Interest Subaccounts. The bonds are unrated.
Rating Decision Updates on Muni Bonds
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Moody’s Upgrades Pottawattamie County, IA’s GOULT to Aa1 and Assigns Aa1 to GO Notes (IA): Moody’s upgraded Pottawattamie County, Iowa’s general obligation unlimited tax bonds to Aa1 from Aa2 this week, which now has 12.8 million outstanding. In conjunction, Moody’s also assigned Aa1 rating to the county’s $5.26 million General Obligation Capital Loan Notes, Series 2018. The area has gained financial strength due to gains in fund balance and liquidity.
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Moody’s Downgrades La Feria, TX’s GOLT to Ba3; Outlook Remains Negative: The City of La Feria, Texas, had its general obligation limited tax bond rating and issuer long-term rating downgraded to Ba3 from Ba1. The area has seen a severe decline in liquidity, due to multiple years of a negative fund balance.
We provide this report on a weekly basis. To stay up to date with muni bond market events, return to our News page here.
