• Treasury yields and municipal yields were mostly up for the week.

• Muni bond fund flows saw second week of outflows.

• Be sure to review our last report to track the changing market conditions.

• The employment situation was announced on Friday and came in lower than expected. Nonfarm payrolls saw an increase of 148,000 on a month-over-month change, which was lower than the expected 191,000. Private payrolls also saw a month-over-month change of 146,000, lower than the consensus of 185,000. However, the unemployment rate came in unchanged and remains at 4.1%, still a very low level and a good indication of a positive job market.

• The ADP Employment Report came in at 250,000, much higher than consensus of 188,000.

• International Trade reported a deficit of $50.5 billion this month, an increase from last month’s $48.9 billion. Exports jumped 2.3% due to an expansion of goods, while imports increased 2.5%, led by consumer goods demand.

• Jobless claims increased by 3,000 this week to a total of 250,000, higher than the consensus amount of 240,000. This recent increase made the four-week average increase slightly to 241,750.

• The Fed’s assets decreased by $5.0 billion this week, bringing the total level to around $4.444 trillion. The weekly decrease is centered in Treasury notes and bonds, which fell $6 billion.

• During the week, money supply (M2) decreased by $19.5 billion, a continuation of last week’s decrease of $2.7 billion.

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

• Treasury yields were mostly up this week, with the exception of the 30-year Treasury. The 2-year Treasury rose 4 bps to now yield 1.96%. The 10-year Treasury yield increased by 1 bps and is now yielding 2.47%, while the 30-year Treasury yield remains unchanged and continues to yield 2.81%. Municipal yields all saw gains this week, with the 2-year AAA-rated bond gaining 1 bps to yield 1.57%. The 10-year AAA-rated bond yield increased 2 bps to 2.03%, while the 30-year yield also saw a gain of 3 bps to yield 2.65%.

• Credit spreads increased this week, with the largest spread between the 5-year Treasury and the AAA-rated municipal bond increasing this week to now be at 57 bps. The spread between the 30-year securities also increased to 16 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.

Municipal bond funds saw outflows for the second week in a row, with $243 million in outflows this week.

In the first week of 2018, the largest issue was from the City of Bridgeport, Connecticut. The city issued over $99 million general obligation bonds that are federally taxable but tax exempt for state tax purposes. The bonds are being used to pay off the liability from the city to the Connecticut Municipal Employees Retirement Fund. The bonds are rated A by Fitch, Baa1 by Moody’s and A by S&P.

Upgrade

Moody’s Upgrades Boone County IA’s GO debt to Aa3: The county of Boone, Iowa, had $3.9 million of its general obligation unlimited tax (GOULT) tax upgraded to Aa3 from A1. The upgrade is due to the nearby presence of Iowa State University, which has led to an influx of jobs to the area, giving the county a low-debt burden and a strong financial position.

Downgrade

Moody’s Downgrades FirstHealth of the Carolinas (NC) to A1; Outlook stable: The FirstHealth of the Carolinas had $53 million of its debt downgraded to A1 from Aa3. FirstHealth has seen a decline in cash-flow margins over the years that are below its peer group, which led to the downgrade. However, it still maintains a relatively strong market position to remain of investment-grade quality.

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