Municipal Bonds Weekly Market Report: March 1

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 Treasury yield curve rose last week with higher gains in yield for shorter-maturity bonds than longer maturities, whereas five- and 10-year muni bonds saw a greater increase than other maturities.

There was a notable upgrade for Campbell Union High School District, CA’s GO bond 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 February 22-26

The Treasury yield curve rose last week.

Friday’s personal consumption expenditures (PCE) report showed that core inflation rose to 1.7%.

High-yield muni bonds outperformed low-yield muni bonds.

On Thursday, the U.S. Treasury Department warned of a potential government shutdown in Puerto Rico and proposed a plan to ease its financial crisis.

Detailed Report

Last week was the second consecutive week that the two-year Treasury increased its yield more than the five-, 10- and 30-year maturities.

Long-term maturities, however, managed to increase in positive terms. The largest increase took place on Friday in response to stronger economic data.

High-yield muni bonds continue to outperform due to the increase in net inflow of $246 million last week and $1.87 billion year-to-date.

30-year maturity muni bonds didn’t change much last week, but the credit spreads contracted for high-yield munis.

The surge in Treasury and muni yield curves last week came in response to positive outlooks in the market, such as gradually increasing oil prices. Further, core inflation increased to 1.7% as per the PCE report published on Friday, and GDP came in above analyst expectations.

U.S. Treasury officials proposed a plan to ease Puerto Rico’s financial crisis. The plan would put pension payments to retirees ahead of bondholders. This created fear in the muni bond market.

On Thursday, the U.S. Treasury Department also warned of a potential government shutdown in Puerto Rico, and a lengthy litigation if Congress doesn’t approve a debt restructuring plan for the U.S. territory soon.

March is typically a slow month for coupon reinvestment since dealer inventory is increasing and the new issue calendar is in process.

Moody’s Upgrade/Downgrade Ratio

Upgrades:

Campbell Union High School District, CA’s GO:

Moody’s Investors Service has upgraded Campbell Union High School District, CA’s general obligation bond rating to Aa1 from Aa2, with bonds outstanding totaling approximately $142.8 million. The upgrade reflects the continued improvement of the district’s large residential tax base in Silicon Valley, which is believed to be composed and self-assured for continued growth over the next few years.

Downgrades:

Grand Rapids Public Schools, MI’s GO:

Moody’s Investors Service has downgraded Grand Rapids Public Schools, MI’s GO bond rating to A1 from Aa3. The downgrade reflects the district’s recent history of structurally imbalanced operations, which have materially narrowed general fund reserves, the district’s sizeable tax base with a below-average socioeconomic profile, and its elevated pension burden.