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 yields, especially shorter maturity yields, rose up, whereas muni bond yields moved up by a few bps.
- There was a notable upgrade for the Town of North Providence, RI’s GO bond rating by Moody’s, the details of which are provided below.
- We also provide a quick update on Puerto Rico’s bond market.
Full-Week Bond Market Summary for Aug 15-19
- Treasury yields fell early last week before surging up due to Janet Yellen’s speech last Friday.
- Muni yields moved up only by a few bps.
- Janet Yellen’s comments increased the probability of a September rate hike in the market.
- Puerto Rico’s pension liabilities are up to $45B.
Detailed Report
- Treasury yields went down early last week before surging up due to Yellen’s comments at last Friday’s Fed meeting.
- The 2-year Treasury yield moved the most by 10 bps, whereas the long-term maturity yield failed to show any significant momentum.
- All non-Treasury sections had negative returns last week overall.
- The market probability of a September 2016 rate hike has now increased from 24% to 42%, after Janet Yellen’s comments.
- Muni bond market yields rose as well due to the impact of Yellen’s speech, but not as significantly as Treasury yields.
- Long-term maturity bond yields barely moved by any bps, which shows that the rise in yield due to a rate hike is more volatile for shorter-term, rather than longer-term, maturity bonds.
- New issue supply of $9.3B was well absorbed last week.
- Muni fund flow managed to make 47th consecutive positive flow week by totaling it to $801M.
- This week’s new issue supply is expected to be $6.6B.
- A seven member board appointed by White House will plan a solution to balance Puerto Rico’s $70B debt load with nearly $43B in unfunded pension liabilities.
Moody’s Upgrade/Downgrade
Upgrades:
Town of North Providence, RI’s GO:
Moody’s Investors Service has upgraded the Town of North Providence, RI’s GO bond rating to A2 from A3. The rating reflects the continued stabilization of the town’s financial position and expectation that this trend will continue. Sustained increases in reserves and liquidity can lead to further upgrade in the rating.
Downgrades:
Maple Heights City School District, OH’s GOULT:
Moody’s Investors Service has downgraded to Baa2 from Baa1 the rating on Maple Heights City School District, OH’s outstanding GOULT bonds. The rating reflects the district’s very stressed and weakening local economy & elevated debt burden. Stabilization of the district’s tax base and local economy could lead to an upgrade.
Treasury Notes Yield Report
| Year | Yield | +/- BPS in Week | +/- BPS in Month |
|---|---|---|---|
| 2-year | 0.84% | 10 | 19 |
| 5-year | 1.24% | 7 | 21 |
| 10-year | 1.63% | 5 | 18 |
| 30-year | 2.29% | 6 | 11 |
Municipal Index Curve Yields
| Year | Yield | +/- BPS in Week | +/- BPS in Month |
|---|---|---|---|
| 2-year | 0.55% | 3 | 3 |
| 5-year | 0.86% | 1 | 2 |
| 10-year | 1.42% | 2 | 2 |
| 30-year | 2.12% | 0 | 0 |
Yield Ratios: Municipal Bonds vs. Treasury Bonds
| Yield Ratios | Ratio (%) |
|---|---|
| 10-year AAA Municipal vs Treasury | 88% |
| 30-year AAA Municipal vs Treasury | 93% |
| High Yield Municipal vs High Yield Corporate | 81% |
“How the DOL’s New Fiduciary Rules Affect Munis”: http://www.municipalbonds.com/news/2016/08/25/how-dol-s-new-fiduciary-rules-affect-munis/ illustrates how new regulations can affect municipal bond industry over the long term.
