• Treasury yields and municipal yields were a mixed bag for the week.

• Muni bond funds continue to gain assets with a third consecutive week of inflows.

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

• On Monday, the Senate voted to reopen the government through to February 8. Democrats agreed to the yes vote and expect to get an up-or-down vote on DACA (Deferred Action for Childhood Arrivals) immigration before February 8 in return.

• Senate also confirmed Jerome Powell to a four-year term as Federal Reserve Chair. His term will begin on February 3 as outgoing Chair Janet Yellen will lead next week’s Fed meeting and then retire when Powell’s term begins.

• GDP data was released on Friday and came in with a quarter-over-quarter change of 2.6%. This was lower than 2.9% consensus data, but consumer spending rose a very strong 3.8%, reflecting a 14.2% burst in durable spending. Residential investment also rose at a very impressive 11.6% annualized rate.

• Jobless claims increased by 17,000 this week to a total of 233,000, which is lower than the consensus amount of 240,000. The four-week average dropped to 240,000. Although this week’s claim increased from last week’s 216,000 measure, which was a 45-year low, the data still indicates the strength of the labor market.

• The Fed’s assets increased by $2.2 billion this week. This brought the total asset base to around $4.441 trillion, down $19 billion from the beginning of the balance sheet unwinding in October 2017.

• During the week, money supply (M2) increased by $20.9 billion, a reversal of last week’s revised decline of $1.4 billion.

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

• Treasury yields were all mixed this week, with the 2-year Treasury rising 6 bps to now yield 2.12%. The 10-year Treasury yield remained unchanged and continues to yield 2.66%, while the 30-year Treasury yield dropped by 2 bps and yields 2.91%. Municipal yields were also mixed, with the 2-year AAA-rated bond dropping 4 bps to yield 1.54%. The 10-year AAA-rated bond yield increased 8 bps to 2.23%, while the 30-year yield also saw a gain of 6 bps to yield 2.86%.

• Credit spreads were also mixed this week, with the largest spread between the 5-year Treasury and the AAA-rated municipal bond remaining unchanged at 72 bps. Meanwhile, the spread between the 30-year securities decreased to 5 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 inflows for the third week in a row, increasing by $799 million, after an increase of $1.06 billion in the previous week.

The largest issue of the week was from the Metropolitan Transportation Authority (MTA) from New York, which issued over $472 million of transportation revenue bonds this week. There are two series: Series 2018A-1, which consists of over $194 million bonds, and Series 2018A-2, which consists of $277 million bonds. Both bonds are subject to mandatory tender that MTA reserves the right to purchase the bonds on the mandatory purchase date. The bonds are rated A1 by Moody’s, AA+ by KBRA, AA- by Fitch and AA- by S&P.

Upgrade

Moody’s Upgrades China Spring ISD’s, TX, Outstanding GOULT Debt to Aa3 (TX): Texas-based China Spring Independent School District had $15.9 million of its general obligation unlimited tax (GOULT) bonds upgraded to Aa3 from A1. The area has a strong tax base that has led to strong reserves and manageable debt and pension burdens.

Downgrade

Moody’s Downgrades to A2 From A1 Pacific County Public Utility District’s Electric Revenue Bonds; Stable Outlook: Washington-based Pacific County Public Utility District No. 2 had its electric revenue bonds downgraded to A2 from A1. This downgrade affects $13.0 million of bonds that were originally issued in 2014. The area has been affected by weak financial management, which has led to higher levels of debt.

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