• The FOMC met this week and decided to leave interest rates unchanged, causing Treasury and municipal yields to fall for the week.

• Monthly economic figures were on the positive trend, but not enough to bump up rates.

• The Fed’s Fischer says labor market has had a pretty good year and the country is close to full employment.

• The PMI manufacturing index increased to 53.4, up from 51.5 from the prior week. Although this has been growing, it has not been at a rapid pace that could eventually lead to inflationary issues for bond investors.

• The PMI services index increased sharply to 54.8, up from September’s figure of 52.3. This was led by consumer spending as well as the rise in input costs and selling prices. This positive trend shows investors that the economy continues to grow in the right direction.

• Construction spending continues to decline, but at a slower pace than in previous months. Spending numbers fell 0.4% in September and are down 0.2% on a year-over-year basis. Residential spending was the best performer of the index, rising 0.5% for the month.

• The Treasury announced that the $62 billion total quarterly refunding package will raise $3.5 billion in new cash. The refunding package will mirror the last three quarters, with $24 billion in 3-year notes, $23 billion in 10-year notes and $15 billion in 30-year. The announcement comes as no surprise to bond investors, and maintains the same Treasury inventory level. If the Fed decides to increase the supply in the next quarter, bond yields will also increase accordingly.

• The monthly Employment Situation report was released on Friday and looked relatively favorable. Unemployment fell to 4.9%, down 0.1% from last month. Although both non-farm payrolls and private payrolls dropped from the previous month’s figure, they stood at a respectable level of 161,000 and 142,000, respectively.

• The ADP employment report came in less than the consensus, with a total of 147,000 versus the expected 170,000. This is also down from September’s total of 202,000. Although the trend has been negative, it shows that wage inflation is very low, which contributes to the Fed’s decision to maintain interest rates at the same level.

• Gallup’s U.S. Job Creation Index shows a net hiring measure of 32, which was below September’s measure of 33. However, this still maintains a positive trend for the last five months and shows that although the job market is not growing rapidly, it is maintaining a positive trend.

• Jobless claims remained at a low level, only up 7,000 in new claims. The new level is at 265,000, slightly higher than the previous week of 258,000 (click here to read last week’s market report). However, the four-week moving average is now 257,750 and remains one of the lowest for the last few years.

• The International Trade Report demonstrated that the trade gap continues to narrow, with the trade balance at -$36.4 billion. Imports fell 1.1%, while exports rose 0.6%.

• The Bloomberg Consumer Confidence Index has again increased to maintain a consistent trend over the last few weeks. The index rose 0.7 up to 44.6, up from 43.9 from the week prior. This is the best reading since August 2016 and shows that consumers are beginning to have more faith in the economy with the election looming ahead.

• The Fed’s Stanley Fischer did not specifically confirm on Friday at the IMF that interest rates would rise in December. However, there were indications that the labor market has been pretty good this year and that the country is close to full employment.

• On November 1, the FOMC meetings began deliberating on whether or not to raise interest rates. Based on relatively flat unemployment numbers, job gains have increased. The FOMC sees inflation as increasing but still below their 2% longer-run objective. With the data and the current status of the economy, the FOMC decided to maintain the target range for interest rates, as expected by Wall Street. This caused yields to drop across the board for the week. To know how the Fed’s interest rate decision can impact muni bond yields, read here.

• While the Fed continued to meet the market’s expectations regarding interest rate movement, there is a 70% chance of a hike in December if the Fed continues to see strengthening economic data. Bond investors should expect yields to slowly increase and prices to decrease to this point.

• Both the 5-year and 10-year spreads have widened between Treasuries and municipals during last week. Treasuries in these maturities dropped significantly from the week before, due to the Fed’s announcement to maintain rates at current levels. The 10-year spread specifically now shows municipals at a 22 basis point spread over the Treasury, showing that tax-free bonds are a much better bargain.

• Municipal bond funds have posted outflows in two of the past three weeks after record 54 weeks of inflows. Last week, net outflows were $323.6 million, compared with $334.9 million of net inflows in the week prior. This was mostly contributing to the expectation that the Fed will raise rates later this year. Bond funds, especially with a longer duration, are more sensitive to rising rates.

• Chicago, Illinois issued $1.02 billion of O’Hare airport senior lien revenue refunding bonds that was put together by Bank of America Merrill Lynch. The issue is rated A by S&P Global Ratings and Fitch Ratings. With Illinois having the lowest state rating, this issue went better than expected and was more successful than the general obligation October 2015 issued last year. The market saw spreads shrinking, as the 10-year maturity in the series showed a 58 basis points spread to the AAA. To get more details on the different bond series from the same issuer and past trading history, click here.

Upgrade

• Moody’s Upgrades Hofstra University (NY) to A2; Outlook Stable: Moody’s upgrades $168 million of Hofstra bonds because it has shown strong operating performance and its borrowing plans will be manageable in the future. To learn more about other muni bonds issued by the state of New York, click here.

Downgrade

• Moody’s Downgrades Terra State’s Underlying Rating to Baa2, Affirms Enhanced Rating, Outlook Negative. This is based on declining enrollment and the inability to reduce operating deficits. To learn more about other muni bonds issued by the state of Ohio, click here.

Using our Moody’s report section, find out what other muni bonds were upgraded or downgraded during the week.

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