Municipal Bonds Weekly Market Report: January 12

MunicipalBonds.com provides information regarding the performance of muni bonds for the past week in comparison with Treasury yields, as well as details regarding the net inflow in the muni market.

Treasury yields and equity prices dropped last week due to the weakness in China and volatility in the global equity markets.

There was also a notable upgrade in Brockport Central School District’s (NY) general obligation (GO) bonds by Moody’s, the details of which are provided below. Also, we provide a quick outlook on Puerto Rico’s bond market performance.

Full Week Bond Market Summary for January 4-7

Treasury yields declined last week.

The market is not expecting another Fed rate hike until June.

Municipal bond yields also declined last week.

High-yield muni bonds declined with accelerated momentum.

Puerto Rico bonds strengthened in the last week.

Detailed Report

Even though there has been a strong payroll report in the last couple of months, Treasury yields declined largely last week; bonds with maturities of 2, 5, 10 and 30 years dropped by at least 10 basis points. The main reason behind the fall in the market was most likely the early market close in China last week, triggered by the nation’s currency devaluation.

The market doesn’t expect the next rate increase to occur until June.

Municipal bond yields declined more than 10 basis points in the last week as well. Yields declined considerably for all municipal bonds but slightly more for high-yield bonds, causing credit spreads to tighten.

Municipal fund flows were $993 million. This week, there were $8.5 billion of new issuances, meaning investors can expect quite a bit of volatility this week in the municipal market.

Puerto Rico bonds strengthened after the territory avoided a large default by redirecting revenues and defaulting on several smaller issues.

Moody’s Upgrade/Downgrade Ratio

Upgrades:

Brockport Central School District’s (NY) General Obligation (GO) Bonds:

Moody’s Investors Service has upgraded the Brockport Central School District’s (NY) $1.1 million School District Serial Bonds, 2016 to Aa3 from A1. The upgrade to Aa3 reflects the district’s strong financial position, moderately sized tax base and manageable debt profile.

Downgrades:

Erie City Water Authority Revenue Bonds:

Moody’s Investors Service has downgraded the rating of the Erie City Water Authority, PA’s $256 million outstanding revenue bonds from A1 to A2. The downgrade to A2 reflects the authority’s high debt burden, which limits the system’s ability for additional borrowing and reduces its overall financial flexibility due to rising debt service costs.