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.
The market went through a rollercoaster ride last week, leaving Treasury yields slightly above the curve.
There was also a notable upgrade in Green County, Mo’s GOLT bond by Moody’s, the details of which are provided below. Also, the market is looking forward to the Fed’s meeting this week, and we provide a quick outlook on Puerto Rico’s bond market performance.
Full Week Bond Market Summary for January 19-22
- Treasury yields closed slightly above the previous week’s curve.
- Treasury yields are expected to remain highly correlated with oil prices.
- The high-yield municipal bond market remained strong through last week’s market rollercoaster.
- The market is looking forward to the Fed’s meeting this week and the Bank of Japan’s meeting.
- Puerto Rico has been sued by another bond insurer.
Detailed Report
- 5- and 10-year Treasuries reached their lowest yield since October 2015, and 30-year Treasuries reached their lowest yield since August 2015 last Wednesday, before they recovered during the later part of the week.
- Tumbling oil prices drove the direction of Treasuries and all the major risky assets. Oil prices reached near 13-year lows last week, creating chaos and a sense of fear among investors globally, before rising up towards $30/barrel again.
- Muni bond new issuances totaled $5.3 billion and fund flows totaled $530 million.
- This week’s muni bond new issuance is expected to reach $5.6 billion.
- As we approach February, which is historically a month with low coupon money to reinvest, there remain concerns regarding issuance in the market.
- There has been only $1 billion of new issuances of high-yield muni bonds in 2016 so far.
- The Fed meeting at the start of this week will likely lack any policy changes, but the market will analyze how the Fed incorporates the recent global market volatility.
- Also, global investors will keep a keen eye on the Bank of Japan’s meeting later in the week and its outcomes on the market.
- Financial Guaranty Insurance Company sued Puerto Rico on the legality of redirecting revenues from other bond payments to make GO debt service payments.
- This is the third bond insurer to halt the revenue raid for Puerto Rico. The first two were Ambac Financial Group Inc. and Assured Guaranty Ltd. just two weeks ago.
Moody’s Upgrade/Downgrade Ratio
Upgrades:
Green County, MO’s GOLT:
Moody’s has upgraded the county’s General Obligation Limited Tax (GOLT) and appropriation-backed debt to Aa3 from A1. The Aa3 rating on the county’s GOLT bonds represents incorporated nonappropriation risk, the essentiality of the projects to government operations, and the credit fundamentals of the county’s long-term issuer rating.
Downgrades:
Coshocton City School District, OH’s General Obligation:
Moody’s Investors Service has downgraded to A2 from A1 the underlying rating on Coshocton City School District, OH’s $8.6 million general obligation (GO) debt. The downgrade to A2 of the underlying GO rating reflects the district’s limited economic profile characterized by a modestly sized tax base and weak socioeconomic indicators. These include declining enrollment, average debt burden, significant exposure to two underfunded cost-sharing retirement plans, and also the district’s heavy dependence on state funding of operations.
Treasury Notes Yield Report
| Year | Yield | +/- BPS in Week | +/- BPS in Month |
|---|---|---|---|
| 2-year | 0.87% | 2 | -18 |
| 5-year | 1.48% | 3 | -28 |
| 10-year | 2.05% | 2 | -22 |
| 30-year | 2.82% | 1 | -19 |
Municipal Index Curve Yields
| Year | Yield | +/- BPS in Week | +/- BPS in Month |
|---|---|---|---|
| 2-year | 0.68% | -3 | -9 |
| 5-year | 1.05% | -2 | -21 |
| 10-year | 1.75% | 0 | -17 |
| 30-year | 2.76% | 6 | -6 |
Yield Ratios: Municipal Bonds vs. Treasury Bonds
| Yield Ratios | Ratio (%) |
|---|---|
| 10-year AAA Municipal vs. Treasury | 85% |
| 30-year AAA Municipal vs. Treasury | 98% |
| High-Yield Municipal vs. High-Yield Corporate | 71% |
Further Reading
Muni Investing: Funds vs. Bonds illustrates guidelines for purchasing different municipal bond options: individual muni bonds or bond funds that hold diversified portfolios.
