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 declined last week post-Fed meeting whereas shorter-maturity muni bond yields improved.
There was a notable upgrade for the Town of Islip, NY’s 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 March 14-18
- Treasury yields were stable early last week before declining after the Federal Reserve’s meeting.
- Two interest rate hikes are expected for 2016.
- Municipal bond prices improved but underperformed the strong U.S. Treasury rally last week.
- The U.S. will propose a bill for Puerto Rico in the next few weeks.
Detailed Report
- Treasury rates declined last week after the Fed’s meeting given the dovish tone of the post-meeting statement and lower year-end Fed funds projections.
- Two-, five- and 10-year Treasury bonds fell more than 10 basis points last week.
- The investment-grade corporate and high-yield markets posted the strongest relative returns.
- As per Fed projections, a rate hike can be expected twice in 2016 but not before June.
- Muni bond prices improved last week but underperformed the U.S. Treasury.
- Short-term maturity muni bonds improved last week whereas long-term maturity yields saw a significant decline.
- The $8 billion new issue calendar was received last week.
- Municipal fund flows were strong again at $780 million.
- High-yield municipal bonds had strong inflows of $229 million last week, totaling $2.4 billion year to date.
- This week’s new issue supply of $6.2 billion will be brought to market early in the week due to the holiday-shortened week.
- The White House will likely propose a bill for Puerto Rico in the next few weeks that will combine oversight authority and a potential path for debt restructuring.
- Given the size of Puerto Rico’s debt, it’s unclear how the island will handle large debt service payments due in May and July.
Moody’s Upgrade/Downgrade Ratio
Upgrades:
Town of Islip, NY’s GO:
Moody’s Investors Service has assigned a Aaa rating to the town of Islip, NY’s public improvement serial bonds, 2016 and the town’s $146 million general obligation debt outstanding. The upgrade to Aaa reflects a sound financial position, large tax base poised for future growth, above-average wealth indicators and manageable debt.
Downgrades:
City of Houston, TX’s GOLT:
Moody’s Investors Service has downgraded the city of Houston, TX’s GOLT rating to Aa3 from Aa2, affecting approximately $3 billion in previously issued bonds. The downgrade to Aa3 reflects weakening economic and financial performance driven by prolonged decreases in oil prices as well as the city’s high fixed costs, large unfunded pension liabilities and property tax caps.
Treasury Notes Yield Report
| Year | Yield | +/- BPS in Week | +/- BPS in Month |
|---|---|---|---|
| 2-year | 0.84% | -12 | 6 |
| 5-year | 1.33% | -16 | 12 |
| 10-year | 1.87% | -11 | 14 |
| 30-year | 2.68% | -8 | 6 |
Municipal Index Curve Yields
| Year | Yield | +/- BPS in Week | +/- BPS in Month |
|---|---|---|---|
| 2-year | 0.67% | 3 | 13 |
| 5-year | 1.12% | 1 | 19 |
| 10-year | 1.83% | -6 | 7 |
| 30-year | 2.79% | -7 | -1 |
Yield Ratios: Municipal Bonds vs. Treasury Bonds
| Yield Ratios | Ratio (%) |
|---|---|
| 10-year AAA Municipal vs. Treasury | 97% |
| 30-year AAA Municipal vs. Treasury | 104% |
| High-Yield Municipal vs. High-Yield Corporate | 82% |
Can You Be Too Safe With Muni Bonds? discusses the risks that investors need to be aware of while investing in short- and long-duration muni bonds.
