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.
Treasury and muni yields had a roller coaster ride across the curve last week, driven by a surprise vote for the Brexit last Thursday.
There was a notable upgrade for the Los Altos School District, CA’s GO Bonds rating by Moody’s, the details of which are provided below. We also provide a quick overview on Puerto Rico’s bond market performance.
Full-Week Bond Market Summary for June 20 - 24
- Treasury yields rose early last week before dropping dramatically on Friday due to the Brexit.
- Muni yields declined as well last week.
- The 5-year muni yield declined the most.
- The Brexit vote benefited the high yield and high grade muni markets due to decreased yields and increased prices.
- Treasury Secretary urged to address Puerto Rico’s debt crisis immediately before it defaults on July 1.
Detailed Report
- 2-year treasury yields declined the most.
- UK’s unprecedented decision to leave the EU had a dramatic impact on the global markets.
- The exit process will likely be prolonged, since once the UK invokes Article 50 of the Treaty on the European Union it will have two years to negotiate its exit.
- Decline in the yields resulted in positive total returns for bonds.
- The Brexit vote has decreased the probability of an additional Fed rate hike in 2016.
- Muni bonds outperformed Treasury bonds last week.
- New issue supply of $10.4B was absorbed last week.
- This week’s new issue supply is expected to be $8.2B.
- With the Brexit tide last week, fund flows were strong at $321M and are expected to be active this week as well.
- US Treasury Secretary urged to address Puerto Rico’s debt crisis immediately before it defaults on its $2B debt due on July 1.
- Currently, the island territory is facing a total of approximately $70B of debt crisis.
Moody’s Upgrade/Downgrade
Upgrades:
Los Altos School District, CA’s GO:
Moody’s Investors Service has upgraded Los Altos School District, CA’s GO Bonds from Aa1 to Aaa. This upgrade reflects the sustained growth to the district’s Silicon Valley tax base and healthy financial position. It also reflects the immense wealth of district residents, low debt and average pension burdens.
Downgrades:
Lakewood Public Schools, MI’s GOULT:
Moody’s Investors Service has downgraded to A2 from A1 the rating on Lakewood Public Schools, MI’s GOULT. It reflects operating deficits by declines in enrollment, high fixed cost arising from debt, and pension burden and appreciating tax base. Sustained trend of positive operations and moderation of fixed cost could lead to an upgrade.
Treasury Notes Yield Report
| Year | Yield | +/- BPS in Week | +/- BPS in Month |
|---|---|---|---|
| 2-year | 0.63% | -7 | -25 |
| 5-year | 1.07% | -4 | -30 |
| 10-year | 1.56% | -5 | -29 |
| 30-year | 2.41% | -1 | -24 |
Municipal Index Curve Yields
| Year | Yield | +/- BPS in Week | +/- BPS in Month |
|---|---|---|---|
| 2-year | 0.59% | -5 | -13 |
| 5-year | 0.86% | -8 | -23 |
| 10-year | 1.36% | -7 | -30 |
| 30-year | 2.08% | -6 | -37 |
Yield Ratios: Municipal Bonds vs. Treasury Bonds
| Yield Ratios | Ratio (%) |
|---|---|
| 10-year AAA Municipal vs Treasury | 87% |
| 30-year AAA Municipal vs Treasury | 86% |
| High Yield Municipal vs High Yield Corporate | 84% |
The How to Avoid Overpaying for Individual Muni Bonds article provides some tips to avoid overpaying for individual muni bonds.
