• Fed regional leaders Dudley, Kaplan, Powell and Mester all spoke this week and indicated the economy is showing strong enough momentum that a December rate hike is highly likely.

• Both Treasury and muni yields continue to rise, with municipals showing better value over Treasuries across all maturity levels. Credit spreads continue to widen, especially in the longer-term issues.

• Municipal fund flows continued the massive outflow trend for the third straight week, with just over $2 billion for the week and over $7 billion for the month of November.

• Be sure to check back to our previous week’s report.

• Quarterly GDP data was released on Tuesday and surpassed the consensus measure with 3.2% annualized QoQ change in real GDP. Personal consumption rose 2.8% for the quarter, which was also up 0.7% from consensus estimates. This report points to better-than-expected momentum for the consumer, primarily due to a strengthening labor market.

• New York Fed President William Dudley spoke about Puerto Rico’s ability to possibly return to the bond market once it recovers from its financial collapse. Dudley mentioned that if the local government comes up with a viable and executable fiscal plan, Puerto Rico will be able to re-enter the bond market. This is encouraging news for investors who currently own Puerto Rico muni bonds, which have been seen prices come crashing down due to the territory’s inability to make debt obligations.

• Fed Governor Jerome Powell spoke in Washington on Tuesday and mentioned that the case for a rate hike has clearly strengthened in the U.S. since the last FOMC meeting. Almost all of the Fed Governors and even the Fed Chairman have given indications that a rate hike will occur during the December 13-14 meetings. Given this situation, you should read what higher interest rates mean for muni bondholders.

• Dallas Fed President Robert Kaplan addressed the media on Wednesday and mentioned that he is comfortable with a rate hike at the next meeting, and had already been comfortable with raising rates during the September and November meetings. He also mentioned that he will be closely monitoring the new incoming President’s economic policies to see if it will cause the Fed to accelerate the gradual rate hike process.

• Consumer confidence hit a long-time high with a measure of 107.1, up 6.3 points from last month’s measure. This mark is the highest reading of the cycle since July 2007, and shows that the economy is strong and the consumer has more faith in the country after the election.

• ADP’s employment report came in much higher than expected, with private payroll growth of 216,000 jobs, up from the consensus amount of 160,000. This figure is more than double the October amount and continues to provide further proof that the labor market is going strong.

• The jobless claims measure had a surprising jump, up 17,000 jobs to 268,000. The Labor Department says there are no special factors to contribute to this one week growth, but a shortened holiday week makes adjustments difficult. The four-week moving average remains relatively flat at 251,500, and the trend still remains positive because of a strong demand for labor in the economy.

• The Fed Balance Sheet saw a decline of $19.5 billion in assets, with a total level of $4.45 trillion in total assets. This shows that the Fed bought back securities to decrease liquidity in the economy. After last week’s increase of $12.1 billion, the Fed is carefully controlling the liquidity in the marketplace to further steady interest rates before the hike comes into effect.

• Treasury yields, barring 2-year maturities, all rose last week as the fixed income markets continued to see prices decrease ahead of the December Fed meeting’s decision to raise interest rates. Muni bonds continue to see yields rise and yields are now higher than those of Treasuries across all maturities. The spread of 10-year and 30-year maturities continued to widen the most between Treasuries and muni bonds, reaching 18 bps and 30 bps, respectively.

• On December 1, the Arizona Salt River Project issued $151,175,000 on revenue bonds that are rated Aa1 by Moody’s and AA by Standard & Poor’s. The proceeds are used for a federal reclamation project with the Salt River Valley Water Users’ Association that operates an electrical system to generate, purchase, transmit and distribute electrical power to a 2,900 square mile area of Arizona. For more information on Moody’s reports of other Arizona bonds issues, click here.

Upgrade

Moody’s Upgrades Wayne County Water and Sewer Authority, NY’s Water/Sewer Bonds to Aa3: The upgrade from A1 that affects $661,000 of debt outstanding reflects the area’s improved debt service coverage and healthy liquidity position. To learn more about other muni bonds issued by the Wayne County, click here.

Downgrade

Moody’s Downgrades Roosevelt University, IL’s Series 2009 to Ba1 and Series 2007 to Ba2; Outlook Negative: $225 million of the University’s outstanding debt has been downgraded due to the second consecutive year of a weakening financial condition. The University has suffered from double-digit decline in enrollment and insufficient debt coverage, high fixed costs and high financial leverage. To learn more about other muni bonds issued by the state of Illinois, 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.

• For the third straight week, municipal bond funds showed outflows of $2.09 billion and over $7 billion for the month. This is attributed to investors looking for shorter duration investments, which will be less affected by the expected interest rate hike in the next few weeks.