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.
The Treasury yield curve remained almost flat last week with a minor hinge for shorter maturities. The high-yield muni curve saw a positive rise.
There was a notable upgrade for the Village of Southampton, NY’s GOLT bond 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 February 16-19
- The Treasury yield curve flattened last week.
- Shorter maturities were impacted by Friday’s inflation report.
- Long-term muni bonds saw a positive rise in their yields.
- Puerto Rico has warned a debt moratorium may be approved.
Detailed Report
- Long-term maturity Treasury bonds flattened last week, while short-term bonds moved less so.
- Long-term maturity yields rose earlier in the holiday-shortened week but plunged at the end of the week.
- The initial rise in yields was caused by a rise in equity and oil, which was driven by an agreement between Saudi Arabia and Russia to freeze oil output at January production levels in an attempt to stabilize prices.
- The 30-year muni bond saw an increase of 10 basis points in its yield.
- High-yield muni bonds outperformed last week due to the credit spread contraction.
- Excess yield returns remains the main reason risk-averse investors are investing in muni bonds in this low-rate market.
- New issuances totaled $5.7 billion last week.
- Muni fund flows totaled $669 million.
- This week’s new issuance is expected to increase to $7.5 billion.
- The muni market continues to remain volatile.
- Friday’s inflation report supported the Federal Reserve’s assertion that inflation will slowly rise to 2%.
- Puerto Rico has warned a debt ban may be approved prior to midyear debt service payments.
- Since 2013, the credit spreads for bonds funds that include Puerto Rico have widened by 128 basis points, while bond funds that exclude Puerto Rico have contracted by 30 basis points.
- A top Puerto Rican official told Speaker Paul Ryan on Monday that the island is nearly finished putting together a comprehensive collection of financial documents to help guide Congress in crafting a debt-relief plan for the island.
Moody’s Upgrade/Downgrade Ratio
Upgrades:
Village of Southampton, NY’s GOLT:
Moody’s Investors Service has upgraded the Village of Southampton, NY’s $5.7 million Ambulance Building Serial Bonds-2016 to Aa1. The upgrade to Aa1 reflects the village’s substantial tax base and strong financial position, aided in part by three years of surpluses. The rating also reflects the village’s above-average wealth indicators.
Downgrades:
Kirtland, OH’s GOLT:
Moody’s Investors Service has downgraded the rating of Kirtland, OH’s outstanding general obligation limited tax (GOLT) debt to A3 from A2. The downgrade to A3 incorporates the city’s steady narrowing of liquidity due to persistent operating deficits.
Treasury Notes Yield Report
| Year | Yield | +/- BPS in Week | +/- BPS in Month |
|---|---|---|---|
| 2-year | 0.74% | 3 | -3 |
| 5-year | 1.23% | 1 | -10 |
| 10-year | 1.75% | 0 | -18 |
| 30-year | 2.61% | 0 | -14 |
Municipal Index Curve Yields
| Year | Yield | +/- BPS in Week | +/- BPS in Month |
|---|---|---|---|
| 2-year | 0.52% | 0 | -14 |
| 5-year | 0.83% | 3 | -17 |
| 10-year | 1.66% | 6 | -5 |
| 30-year | 2.78% | 10 | 3 |
Yield Ratios: Municipal Bonds vs. Treasury Bonds
| Yield Ratios | Ratio (%) |
|---|---|
| 10-year AAA Municipal vs. Treasury | 94% |
| 30-year AAA Municipal vs. Treasury | 107% |
| High-Yield Municipal vs. High-Yield Corporate | 69% |
Further Reading
How Susceptible Are Muni Bonds to Retail Investor Sentiment? This article suggests that different dynamics influence the pricing of municipal bonds.
