Municipal Bonds Weekly Market Report: December 8

Full Week Bond Market Summary for Nov. 30 - Dec. 4

Treasury yields declined initially at the start of the week but rose after Thursday.
On Friday, the U.S. employment report affirmed expectations that the Federal Reserve (Fed) will begin policy normalization later this month.
Municipal bonds prices went strong last week but high yield municipal bond declined overall.
Puerto Rico exercised their ability to clawback dedicated revenues.

Detailed Report

U.S. Treasury Yields declined at the start of the week but then increased later in the week. The major cause for the increase was the announcement of Thursday’s ECB policy that mid- to long-term yields increased more than 10 basis points.

The strong employment report of November will give the Fed a positive signal to begin policy normalization at its December meeting. Looking at the report, a hike in the Fed funds rate looks likely to be imminent. Despite market volatility, municipal bond prices were strong last week.

Municipal bond fund flows were $364 million. This week there will be a new issuance of $7.8 billion. High-yield municipal yields declined and the overall fund flows are $2.14 billion per year to date—more than 3/4th fund coming in the fourth quarter.

Moody’s Upgrade/Downgrade Ratio

Upgrades:
Palo Alto USD, CA’s GO Bond:
Moody’s Investors Service has upgraded the general obligation bond rating for Palo Alto Unified School District to Aaa from Aa1. The rating upgrade affects approximately $312 million in outstanding general obligation debt. This upgrade reflects the district’s sizeable and robust tax base.

Downgrades:
Town of Hempstead, GOLT Bond:
Moody’s has downgraded Town of Hempstead, NY’s GOLT Bond to Aa2 from Aa1—the rating on previously issued parity debt affecting $370 million in debt. It reflects 3 years of structurally imbalanced operations, which have led to deterioration in available fund balance.

Treasury Notes Yield Report

Year	Yield	+/- BPS in Week	+/- BPS in Month
2-year	0.94%	+2	+1
5-year	1.71%	+6	+6
10-year	2.27%	+5	+6
30-year	3.01%	+1	+4

Municipal Index Curve Yields

Year	Yield	+/- BPS in Week	+/- BPS in Month
2-year	0.73%	+1	+1
5-year	1.27%	+1	+1
10-year	2.01%	-2	-1
30-year	2.96%	-1	0

Yield Ratios – Municipal Bonds vs. Treasury Bonds

Yield Ratios	Ratio (%)
10-year AAA Municipal vs Treasury	88%
30-year AAA Municipal vs Treasury	98%
High Yield Municipal vs High Yield Corporate	84%

Puerto Rico

Puerto Rico exercised its ability to clawback dedicated revenues; Government Development Bank (GDB) confirmed that it paid out its latest installment of $354 million debt payment.
Puerto Rico faces over $70 billion in debt that it is almost certainly unable to service as is, which means that a restructuring with creditors will be necessary.
U.S. Supreme Court will hear an appeal from the Commonwealth on the ruling that a local bankruptcy law allowing public corporations to restructure their debt was unconstitutional.