All major fixed-income sector yields fell last week, similar to Treasuries, with some exceptions of high yield. The muni bond market for high yield also declined. This article provides information regarding the peformance of muni bonds for the past week in comparison with Treasury yields as well as details regarding the net inflow in the muni market. Also, there was a notable upgrade in Pasadena’s, TX Utility Revenue Bonds by Moody’s, the details of which are provided below.
Full Week Bond Market Summary for December 7-11
- Treasury yields declined again last week.
- It is expected that the Fed will begin policy normalization at its meeting this week.
- Last week low-yield municipal bond rates went up, while high-yield bonds decreased slightly.
- High-yield muni bonds declined less than high-grade bonds.
Detailed Report
- U.S. Treasury yields declined last week due to fluctuations in oil prices. There was major distress on the high-yield market on Friday, which caused a significant drop in yield.
- The high-yield sector posted the weakest performance, with spreads widening by 72 basis points for the week to their highest levels since June 2012.
- Despite the volatility and distress in the high-yield market last week, it is expected that the Fed will begin its policy normalization at its meeting this week.
- A large new issue calendar of $9.5 billion was well received in the muni market, with a total fund flow of $742 million for last week. High-yield municipal bond fund inflows totaled $203 million last week, with a diverging performance that was driven by technical factors. The average drop on high-yield muni bonds was five basis points, with a yield ratio of 78%, a multiyear low. Throughout 2015, high-yield muni bonds have been less volatile than high-grade yields.
Moody’s Upgrade/Downgrade Ratio
Upgrades:
Pasadena’s, TX Utility Revenue Bonds:
Moody’s Investors Service has upgraded Pasadena’s, TX Utility Revenue Bonds to Aa3 from A1. The City of Pasadena Water and Sewer Enterprise’s, TX has $53M in outstanding revenue debt. The upgrade to Aa3 reflects the system’s healthy operations with adequate capacity, strong cash reserves and a low debt burden. The rating also incorporates the moderate socioeconomic profile of the customer base and a plan for draws on existing reserves for pay-go capital.
Downgrades:
Coralville, IA’s GO Bond:
Moody’s Investors Service has downgraded the rating of the City of Coralville, IA’s general obligation unlimited tax (GOULT) debt to Baa3 from Baa2. Moody’s has also downgraded the city’s annual appropriation debt from Ba1 to Ba2. Coralville has $93.5 million of GOULT debt outstanding as well as $146.6 million of annual appropriation-backed debt outstanding.
Treasury Notes Yield Report:
| Year | Yield | +/- BPS in Week | +/- BPS in Month |
|---|---|---|---|
| 2-year | 0.88% | -6 | -6 |
| 5-year | 1.55% | -15 | -9 |
| 10-year | 2.13% | -14 | -8 |
| 30-year | 2.87% | -14 | -10 |
Municipal Index Curve Yields:
| Year | Yield | +/- BPS in Week | +/- BPS in Month |
|---|---|---|---|
| 2-year | 0.75% | +2 | +3 |
| 5-year | 1.24% | -3 | -2 |
| 10-year | 1.92% | -8 | -10 |
| 30-year | 2.80% | -16 | -16 |
Yield Ratios: Municipal Bonds vs. Treasury Bonds
| Yield Ratios | Ratio (%) |
|---|---|
| 10-year AAA Municipal vs. Treasury | 90% |
| 30-year AAA Municipal vs. Treasury | 98% |
| High-Yield Municipal vs. High-Yield Corporate | 78% |
Further Reading
What Is the White House’s Plan for Puerto Rico’s Debt? This article provides information about the Obama administration’s Roadmap for Congressional Action as one potential solution to the debt crisis.
