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 yields both declined across the curve last week, driven by the Fed’s decision to keep interest rates as they were last Wednesday.
There was a notable upgrade for the Fort Bend County Municipal Utility District No. 121, TX’s GO Bonds rating 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 June 13 - 17
- All yield curves for Treasuries and munis declined last week.
- 10- and 30-year muni bonds had the highest yield decline as compared to other maturities.
- 5- and 10-year Treasury yields closed at their lowest point since June 2013.
- Lawmakers passed the Puerto Rico Oversight, Management and Economic Stability Act (PROMESA) to resolve the island territory’s financial crisis.
Detailed Report
- 2-, 10- and 30-year Treasury yields declined by the same bps (i.e. 3bps).
- Treasury yields for all maturities fell to their lowest levels since June 2013.
- Muni as well as Treasury yields declined the most on Wednesday during the Fed’s meeting, which resulted in the no rate hike anticipated by many Wall Street analysts.
- The bond market was affected by the likelihood of U.K.’s Brexit memorandum, which will take place this week.
- These events are causing a lot of volatility in the market.
- The Fed meeting last week didn’t provide any hints for the possibility of a July rate hike.
- The next rate hike depends on strong economic data and the impact of the Brexit on the U.S. market, if it takes place.
- Muni bond yields declined as well last week – where the largest decline of 9bps was in the 10-year bond.
- The new issue calendar was just $5.5B.
- This week’s new issue calendar is expected to be $8.1B.
- High yield muni bonds fund flows were $324M last week, with a total flow of $5.578B year to date.
- Lawmakers passed the Puerto Rico Oversight, Management and Economic Stability Act (PROMESA) to resolve the island territory’s financial crisis, which is now pending for the Senate’s approval.
- If implemented successfully, this bill can resolve the crisis of $3.5M Americans residing in Puerto Rico and its long debt crisis.
Moody’s Upgrade/Downgrade
Upgrades:
Fort Bend County Municipal Utility District No. 121, TX’s GO:
Moody’s Investors Service has upgraded Fort Bend County Municipal Utility District No. 121, TX’s GO rating to A3 from Baa1. This rating reflects districts growing tax based, elevated debt burden and strong reserve levels. More increase in tax base value and decrease of debt burden can lead to an upgrade of this bond.
Downgrades:
The Village of Schaumburg, IL’s GOULT:
Moody’s Investors Service has downgraded to Aa1 from Aaa the rating of the Village of Schaumburg, IL’s GOULT. This rating is supported by the tax base support coming up from the commercial sector and a handful of top retail taxpayers. Moderation of debt burden and unfunded pension liabilities could lead to an upgrade of the bond.
Treasury Notes Yield Report
| Year | Yield | +/- BPS in Week | +/- BPS in Month |
|---|---|---|---|
| 2-year | 0.70% | -3 | -18 |
| 5-year | 1.11% | -5 | -26 |
| 10-year | 1.61% | -3 | -24 |
| 30-year | 2.42% | -3 | -23 |
Municipal Index Curve Yields
| Year | Yield | +/- BPS in Week | +/- BPS in Month |
|---|---|---|---|
| 2-year | 0.64% | -4 | -8 |
| 5-year | 0.94% | -6 | -15 |
| 10-year | 1.43% | -9 | -23 |
| 30-year | 2.14% | -8 | -31 |
Yield Ratios: Municipal Bonds vs. Treasury Bonds
| Yield Ratios | Ratio (%) |
|---|---|
| 10-year AAA Municipal vs Treasury | 88% |
| 30-year AAA Municipal vs Treasury | 88% |
| High Yield Municipal vs High Yield Corporate | 83% |
The Should Investors Even Look at Junk Muni Bonds? article illustrates whether or not investors should even consider purchasing junk bonds for their municipal bond portfolio.
