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.
- Treasury and municipal yields mostly saw gains.
- Muni bond funds saw outflows after five consecutive weeks of inflows.
- Be sure to review our previous week’s report to track the changing market conditions.
January Shows Strong CPI and Import/Export Data
- WIth the new Fed Chairman Jerome Powell being officially sworn in last week, he announced that he will maintain continuity throughout the year. This suggests the Fed will gradually raise interest rates this year, unperturbed by recent market volatility and rising inflation.
- Consumer Price Index showed a month-over-month change of 0.5% versus the consensus amount of 0.3%. On a year-over-year basis, CPI showed a change of 2.1%, which was higher than the estimate of 2.0%. Gasoline prices were up 5.7% in January, leading to a 3.0% rise for the energy segment.
- Import and export price data was released and, when paired with CPI’s strong numbers, it demonstrated that January was an excellent month for the U.S. economy. Import prices showed a month-over-month change of 1.0%, higher than the consensus of 0.6%. Export prices also increased 0.8%, higher than the consensus of 0.3%. On a year-over-year basis, imports reported a 3.6% increase, while exports reported a 3.4% increase.
- Jobless claims increased by 7,000 this week to a total of 230,000, which is higher than the consensus amount of 229,000. The four-week average rose to 228,500; however, this level is still near all-time lows and shows the labor market is very strong.
- The Fed’s assets increased by $14.1 billion this week, bringing the total asset base to around $4.435 trillion in the February 14 week. This level is down by nearly $25 billion from the beginning of the balance sheet unwinding in October 2017.
- During the week, money supply (M2) increased by $7.9 billion, a continuation of last week’s $4.5 billion increase.
Keep track of economic indicators that might impact the muni market.
Treasury and Municipal Yields See Gains
- Treasury yields were up this week except for the 30-Year Treasury. The 2-year Treasury increased by 12 bps to now yield 2.19%. The 10-year Treasury increased by 2 bps and now yields 2.87%, while the 30-year Treasury yield decreased by 3 bps and now yields 3.13%. Municipal yields all saw increases, with the exception of the 2-year AAA-rated bonds, which saw no change and continues to yield 1.55%. The 10-year AAA-rated bond yield increased 2 bps to 2.48%. The 30-year yield also increased by 6 bps to yield 3.07%.
- Credit spreads were mixed this week, with the largest spread between the 5-year Treasury and the AAA-rated municipal bond increasing to 66 bps from the previous week’s level of 62 bps. Meanwhile, the spread between the 30-year securities declined to 6 bps from the previous week’s figure of 15 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.
Credit Spread
| Maturity | Treasury Yield | Muni Yield | Spread (in BPS) |
|---|---|---|---|
2-year | 2.19% | 1.55% | 64 |
5-year | 2.63% | 1.97% | 66 |
10-year | 2.87% | 2.48% | 36 |
30-year | 3.13% | 3.07% | 6 |
Muni Bonds See Outflows After Five Weeks of Inflows
After five consecutive weeks of inflows, muni bonds saw outflows of $383 million this week.
Hampton Roads Transportation Accountability Commission Issues Senior Lien Revenue Bonds
The largest issue of the week comes from the Hampton Roads Transportation Accountability Commission of Virginia, which issued $500 million bonds. These bonds are Senior Lien Revenue bonds and are the Series 2018A. The Hampton Roads Transportation Accountability Commission is a political subdivision of the Commonwealth of Virginia, which has the responsibility for funding several major traffic projects in the Hampton Roads area. The bonds are rated AA+ by Fitch and AA by S&P.
Rating Decision Updates on Muni Bonds
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Moody’s Upgrades Surry County, NC’s, GO Rating to Aa2; Assigns Initial Aa3 to $7.65M LOBs Series 2018: Moody’s upgraded $715,000 of Surry County, NC’s, outstanding general obligation bonds to Aa2 from Aa3 this week. Moody’s also assigned an initial Aa3 rating to its $7,650,000 Limited Obligation Bonds, Series 2018. This area has a sizeable tax base, a healthy financial position and low debt burdens, which that constituted the upgrade decision.
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Moody’s Downgrades Kenton, OH’s, GO debt to A2: The City of Kenton, Ohio, had the ratings of its general obligation limited tax (GOLT) bonds decrease from A1 to A2. The city has seen a serious decline in its financial status, with a weak tax base, a high pension burden and too much of a reliance on its income taxes.
We provide this report on a weekly basis. To stay up to date with muni bond market events, return to our News page here.
