Full Week Bond Market Summary for Nov. 9 - Nov. 13:
• U.S. Treasury yields rose early last week but declined sharply on Friday, Nov. 13.
• Municipal bonds sold off early last week but recovered strongly on Friday, Nov. 13.
• High-yield municipal bonds remained unchanged.
• Puerto Rico Highway and Transportation Authority agreed to cancel insurance policy on $228.5 million Ambaic insured bonds.
Detail Report
U.S. Treasury rates rose in the early part of the week but then declined on Thursday, Nov. 12, due to the 30-year Treasury bond auction that had a stronger demand than expected. Rates also fell on Friday, Nov. 13. An additional factor that put downward pressure on rates was falling energy prices as oil prices closed the week, below $41 for the first time since August 2015. There still is a high probability of Fed hike rates in December. Municipal bonds sold off early last week, but by Friday, Nov. 13, it recovered back. High-yield municipal bonds yields remained unchanged last week. Fund inflows totaled $52 million last week for high-yield municipal bonds.
Treasury Notes Yield Report:
| Year | Yield | +/- BPS in Week | +/- BPS in Month |
|---|---|---|---|
| 2-year | 0.84% | -5 | 11 |
| 5-year | 1.65% | -8 | 13 |
| 10-year | 2.27% | -6 | 12 |
| 30-year | 3.05% | -3 | 13 |
Municipal Index Curve Yields:
| Year | Yield | +/- BPS in Week | +/- BPS in Month |
|---|---|---|---|
| 2-year | 0.72% | 4 | 18 |
| 5-year | 1.31% | 2 | 14 |
| 10-year | 2.17% | 0 | 13 |
| 30-year | 3.15% | -2 | 8 |
Yield Ratios – Municipal Bonds vs. Treasury Bonds:
| Yield Ratios | Ratio (%) |
|---|---|
| 10-year AAA Municipal vs Treasury | 95% |
| 30-year AAA Municipal vs Treasury | 103% |
| High Yield Municipal vs High Yield Corporate | 86% |
Puerto Rico
• The Puerto Rico Highway and Transportation Authority (HTA) agreed to cancel the insurance policy on Ambiac insured bonds.
• Ambiac policies should get strengthened by this agreement.
Moody’s Upgrade/Downgrade Ratio
Upgrades:
Muni Water second resolution bonds:
Moody’s Investors Service has upgraded the New York City Municipal Water Finance Authority’s second general resolution water and sewer revenue bonds to Aa1 from Aa2, and affirmed the Aa1 ratings assigned to $4 billion of outstanding first resolution bonds. Affirmation of the Aa1 first resolution rating and the upgrade to Aa1 of the second resolution bonds reflect a strong legal structure that provides significant bondholder protections, including a gross lien on system revenues; independent rate setting and a long history of setting rates as needed; and bankruptcy-remoteness that insulates bondholders from potential fiscal strain of the City of New York.
Downgrades:
City of Groves’, TX, GOLT bonds:
Moody’s Investors Service has downgraded to Baa1 from A2 the underlying rating on the City of Groves’, Texas, General Obligation limited tax bonds. The Baa1 rating applies to $3.2 million in outstanding Moody’s-rated debt. The outlook is negative.
More Articles to Read
What Happens to Muni Bonds if the Fed Hikes Rates?: Bonds may be negatively impacted by an interest rate hike, but the extent of the damage remains to be seen. To mitigate potential losses, investors may want to consider shifting into muni bonds, which could benefit in many ways from an interest rate hike.
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