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 and muni bond yields declined last week after the Fed’s statement on Wednesday.
There was a notable upgrade to Pierce County School District, White River, WA’s GOULT 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 April 25-29
- Yields on all Treasuries declined in response to the Fed’s statement.
- According to first-quarter GDP data, the economy has grown by only 0.5%.
- The Fed gave no indication regarding an interest rate increase in June.
- Muni bond prices rose due to a decrease in yields.
- Puerto Rico defaulted on its May 1 debt service payment
Detailed Report
- Treasuries of all maturity ranges declined last week; the five-year maturity led by six basis points.
- The Fed’s dovish statement, which was released on Wednesday, as well as first-quarter GDP data released on Thursday seem to be responsible for the drop in yields.
- The Fed gave no indication as to an interest rate increase at its June meeting, reiterating that rates will increase if the economic condition improves.
- First-quarter GDP data released on Thursday showed that the economy grew by only 0.5% — a weak start in the first quarter.
- Muni bond yields also declined last week (but less than Treasuries) in response to the bearish market. As such, muni prices rose last week.
- The market absorbed last week’s new issue calendar of $8.1 billion.
- Muni inflows remain positive for the 30th consecutive week, showing strong fund flows into munis.
- This week’s new issuance is expected to come in at $8.5 billion.
- High-yield muni bond fund flows increased again, totaling $283 million last week.
- Puerto Rico defaulted on its May 1 debt service repayment by almost $400 million.
- This has been the highest missed principal repayment by the island so far, and the concern in the market regarding Puerto Rico’s debt crisis continues as it has more than $2 billion due by this summer.
Moody’s Upgrade/Downgrade Ratio
Upgrades:
Pierce County School District, White River, WA GOULT:
Moody’s Investors Service has upgraded the underlying rating of Pierce County School District, White River, WA GOULT bonds to Aa2 from Aa3. The upgrade of the district’s underlying rating reflects the sustained, material improvement in the district’s financial position over a multiyear period and its strength of management.
Downgrades:
Pecos County, TX GOLT:
Moody’s Investors Service has downgraded Pecos County, TX’s GOLT to A1 from Aa2. The downgrade to A1 reflects a weakening of the moderately sized tax base and vulnerability of the county’s economy to further volatilities in the oil and gas sector.
Treasury Notes Yield Report
| Year | Yield | +/- BPS in Week | +/- BPS in Month |
|---|---|---|---|
| 2-year | 0.78% | -4 | 6 |
| 5-year | 1.30% | -6 | 9 |
| 10-year | 1.83% | -5 | 6 |
| 30-year | 2.68% | -3 | 7 |
Municipal Index Curve Yields
| Year | Yield | +/- BPS in Week | +/- BPS in Month |
|---|---|---|---|
| 2-year | 0.64% | 0 | -3 |
| 5-year | 0.98% | -2 | -9 |
| 10-year | 1.61% | -4 | -9 |
| 30-year | 2.58% | -2 | -11 |
Yield Ratios: Municipal Bonds vs. Treasury Bonds
| Yield Ratios | Ratio (%) |
|---|---|
| 10-year AAA Municipal vs. Treasury | 88% |
| 30-year AAA Municipal vs. Treasury | 97% |
| High-Yield Municipal vs. High-Yield Corporate | 88% |
Will Muni Bonds Continue to Outperform in 2016? discusses whether or not muni bond yield trends are likely to continue given the Federal Reserve’s interest rate policy and key risk factors in some markets.
