• Treasury yields were mostly up, while municipal yields were mixed this week.

• Muni bond funds return to inflows after outflows last week.

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

• The Federal Reserve released a monetary policy report on Friday that the new Fed Chair Jerome Powell will present to Congress on Tuesday. The report suggests that the Fed believes the labor market appears to be near full employment but valuation pressures continue to be elevated across a range of asset classes.

• Leading indicators saw a month-over-month change of 1.0%, considerably higher than consensus of 0.6%. This measure suggests robust economic growth ahead due to strong economic data and low unemployment.

• The Federal Open Market Committee minutes were released on Wednesday, which was the last meeting chaired by outgoing Fed Chair Janet Yellen. No surprises were in the minutes, as the federal funds rate was unchanged and the inflation target remains at 2.0%. Fed members were more positive that with further gradual adjustments to monetary policy, economic activity would expand at a moderate pace and labor market conditions would remain strong.

• Jobless claims decreased by 7,000 this week to a total of 222,000, which is lower than the consensus amount of 230,000. The four-week average also declined to 226,000, with this level remaining near all-time historic lows.

• The Fed’s assets decreased by $23.2 billion this week, bringing the total asset base to around $4.412 trillion. This level is down $48 billion from the beginning of the balance sheet unwinding in October 2017.

• During the week, money supply (M2) decreased by $10 billion, a reversal of last week’s $7.8 billion increase.

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

• Treasury yields were up this week except for the 10-Year Treasury. The 2-year Treasury increased by 5 bps to now yield 2.24%. The 10-year Treasury remained unchanged and continues to yield 2.87%, while the 30-year Treasury yield increased by 3 bps and now yields 3.16%. Municipal yields were a mixed bag this week, with the 2-year AAA-rated bond declining 1 bps to yield 1.54%. The 10-year AAA-rated bond yield remained unchanged and still yields 2.48%. The 30-year yield increased by 1 bps to yield 3.08%.

• Credit spreads were mixed this week, with the largest spread between the 5-year Treasury and the AAA-rated municipal bond declining to 65 bps from the previous week’s level of 66 bps. Meanwhile, the spread between the 30-year securities increased to 8 bps from the previous week’s figure of 6 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.

After outflows of $383 million last week, muni bond funds saw $366 million in inflows this week.

The largest issue of the week comes from the Commonwealth Financing Authority of Pennsylvania, which issued over $1.487 billion Tobacco Master Settlement Payment revenue bonds this week. The Commonwealth Financing Authority (CFA) was established in 2004 as an independent agency of the Department of Community and Economic Development (DCED) to administer Pennsylvania’s economic stimulus packages. The bonds are being funded as part of the Master Settlement Agreement (MSA), which consists of Philip Morris USA, Reynolds American, Lorillard Tobacco Company and Brown & Williamson Tobacco Corporation. The MSA forces the participating tobacco companies to pay five litigation payments to 46 of the 50 U.S. states, with Pennsylvania being one of them. The long-term rating on the bonds is A1 by Moody’s and AA by S&P.

Upgrade

Moody’s Upgrades the City of Boynton Beach’s (FL) Utility System Revenue Bonds to Aa3: Moody’s upgraded the City of Boynton Beach of Florida’s Utility System Revenue bonds to Aa3 this week. This affects the Series 2012 bonds, which represent over $44 million in outstanding debt. The area has a diverse residential tax base, which has helped provide enough revenue to improve the town’s liquidity and financial position. There is also a surplus capacity of water supply to meet the area’s demand.

Downgrade

Moody’s Downgrades Moline, IL’s GO debt to A1: The City of Modine, Illinois, had $46.2 million of its outstanding GOULT debt downgraded this week to A1 from Aa3. The city has a very high unfunded pension paired with weak demographics.

We provide this report on a weekly basis. To stay up to date with muni bond market events, return to our News page here.