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.
With the exception of the two-year Treasury bond, both Treasuries and muni bonds fell across the curve last week.
There was a notable upgrade for the Alhambra Unified School District’s (CA) GO bonds 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 March 28-April 1
- Cautious comments by Fed chairwoman Janet Yellen seemed to rule out an April interest rate hike, resulting in declining Treasury yields.
- Demand for high-yield municipal bonds continues to build.
- The muni market seems to have a good tone and remains constructive.
- Puerto Rico’s GDB and its creditors are in the midst of restructuring talks that could lead to a forbearance agreement or debt restructuring.
Detailed Report
- The decline in Treasury yields last week was primarily driven by Yellen’s dovish comments.
- Another reason for the yield drop was the Federal Reserve Bank of Atlanta lowering its 2016 first-quarter gross domestic product (GDP) forecast.
- The cautious tone of Yellen’s speech further reduced the probability of a rate hike at one of the upcoming Fed meetings. The market is predicting a rate hike in December with maximum probability.
- The muni market rallied stronger for longer maturities.
- Fund flows for muni bonds totaled $268 million last week and $2.94 billion year to date.
- New issuance supply remains at $375 million in par value this week.
- Market demand remains focused on the secondary muni market.
- Despite the strong flow, high-yield munis failed to keep pace with the rally in high-grade muni bonds.
- Yields declined one to three basis points for high-yield munis, and eight to 12 basis points for high-grade, but spreads increased six to 10 basis points on average.
- On Monday, creditors of Puerto Rico’s Government Development Bank sued to stop it from distributing money to creditors in what they call “preferential transfers” ahead of the GDB’s May 1 debt payment that Puerto Rico’s governor says may not be payable.
Moody’s Upgrade/Downgrade Ratio
Upgrades:
Unified School District’s (CA) GO:
Moody’s Investors Service has upgraded the rating on the Alhambra Unified School District’s (CA) outstanding general obligation bonds to Aa2 from Aa3. The upgrade is driven by the district’s sizeable tax bases underlying each of the bonds. The GO rating also reflects the nature of the GO pledge, which is secured by the district’s voter-approved unlimited property tax pledge.
Downgrades:
Village of Cambridge, IL’s GOULT:
Moody’s Investors Service has downgraded the rating on the Village of Cambridge, IL’s outstanding general obligation unlimited tax (GOULT) debt to Baa3 from Baa1. The downgrade to Baa3 incorporates continued financial weakness in the village’s tax increment financing (TIF) district, which is not producing revenue sufficient to cover all costs, including annual development costs plus debt service. Thus the village is unable to repay a sizeable loan from the general fund.
Treasury Notes Yield Report
Year | Yield | +/- BPS in Week | +/- BPS in Month |
---|---|---|---|
2-year | 0.72% | -15 | -5 |
5-year | 1.22% | -16 | -1 |
10-year | 1.77% | -13 | 3 |
30-year | 2.60% | -7 | 0 |
Municipal Index Curve Yields
Year | Yield | +/- BPS in Week | +/- BPS in Month |
---|---|---|---|
2-year | 0.68% | 1 | 13 |
5-year | 1.07% | -5 | 14 |
10-year | 1.70% | -12 | -6 |
30-year | 2.68% | -8 | -11 |
Yield Ratios: Municipal Bonds vs. Treasury Bonds
Yield Ratios | Ratio (%) |
---|---|
10-year AAA Municipal vs. Treasury | 95% |
30-year AAA Municipal vs. Treasury | 102% |
High-Yield Municipal vs. High-Yield Corporate | 80% |
Muni Bond Tax Overhaul Unlikely, but States Brace for Change takes a look at the history of muni bonds for some context and how the tax changes could impact the muni bond market.