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.
- Both Treasury and municipal bond yields decreased across all maturities.
- Jobless claims increased slightly, but four-week average continued to trend downwards.
- Existing and new home sales showed the real estate market is steadily improving.
- Be sure to review our previous week’s report to track the changing economic situation.
Regional Fed Heads Continue to Expect Three Rate Hikes in 2017
- Philadelphia Fed President Patrick Harker indicated that a rate increase is not off the table in March and that three 25 bps rate increases are appropriate for the year, depending how things turn out.
- Fed Governor Jerome Powell announced that based on inflationary measures, there are no reasons to sway from the Fed’s path to gradually raise rates throughout the remainder of the year. With unemployment down to 4.8%, the Fed is closely watching inflationary measures to ensure that a rate hike is not needed sooner.
- The Fed’s balance sheet increased by $14.0 billion in assets, bringing the total level to around $4.47 trillion. The weekly increase is based on mortgage-backed securities, which rose $13.9 billion.
- The weekly change in money supply (M2) increased by $500 million, which was modest compared to last week’s $8.3 billion increase.
- Jobless claims had a gain for the second week in a row, but only at a modest 6,000 increase. The level was reported at 244,000, which matched consensus estimates. The four-week average continued to trend lower and now sits at 241,000, illustrating the strength of the U.S. labor market.
- Existing home sales increased 3.3% or 5.69 million on a month-to-month basis. This is beyond the consensus amount of 5.58 million. This measure is the best of the economic cycle since February 2007, which was primarily led by a 2.6% increase in single-family home sales and an increase of 8.3% in condo sales.
- New home sales were lower than expected at 555,000 for January and around 21,000 below the consensus estimate. Supply is no longer an issue, with 265,000 new homes on the market for the month of January, which is a new cycle high since July 2009.
Keep track of economic indicators that may impact the muni market.
Municipals Yields Remain Steady, Despite Drop in Treasury Yields
- Treasury yields dropped across all maturities, with the 2-year maturity dropping 5 bps, the 10-year maturity dropping 10 bps and the 30-year dropping 7 bps. Municipal yields also all decreased across the board. The 2-year, 10-year and 30-year AAA-rated yields all dropped 8 bps.
- Credit spreads tightened slightly from the previous week, with the largest spread remaining between the 5-year Treasury and the AAA-rated municipal at 23 bps. The 30-year AAA-rated municipal continues to yield 14 bps higher than its Treasury equivalent.
Credit Spread
| Maturity | Treasury Yield | Muni Yield | Spread (in BPS) |
|---|---|---|---|
2-year | 1.14% | 1.01% | 13 |
5-year | 1.80% | 1.57% | 23 |
10-year | 2.31% | 2.30% | 1 |
30-year | 2.95% | 3.09% | -14 |
Muni Bond Funds See Fifth Straight Week of Inflows
- For the seventh week in a row, municipal bond funds had an inflow of $186 million. Investors are still looking for tax-free income and are not too concerned with the near-term effects of rising rates.
Oklahoma Turnpike Authority System Issues Second Senior Revenue Bonds Series
Salt Lake City, Utah issued over $263 million in airport revenue bonds that are subject to AMT. The proceeds are to be used to finance portions of the Terminal Redevelopment Program and the North Concourse Program. The bonds are rated AA- by KBRA, A2 by Moody’s and A- by S&P. To browse through credit reports of other muni bonds issued by Salt Lake City, Utah, click here.
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Rating Decision Updates on Muni Bonds
Upgrade
Moody’s Upgrades Johnson Co. U.S.D. 232 (De Soto), KS’s GOULT Bonds to Aa2: $150.6 million in outstanding general obligation unlimited tax debt of Kansas Johnson County Unified School District 232 was upgraded from to Aa2 from Aa3 by Moody’s. The area has shown strong tax growth as well as ongoing residential development and property appreciation. To explore additional credit reports about other muni bonds issued by the Johnson County 232 School District in Kansas, click here.
Downgrade
Moody’s Downgrades State of West Virginia’s GO to Aa2; outlook stable: Moody’s downgraded $393.6 million in debt outstanding for the State of West Virginia’s general obligation debt to Aa2. The downgrade is reflected due to the lease ratings reflects the recent trend of a growing structural imbalance between annual expenditures and available resources, with revenues continuing to lag behind budgeted estimates. To explore additional credit reports about other muni bonds issued by the state of West Virginia, click here.
We provide this report on a weekly basis. To stay up to date with muni bond market events, return to our News page.
