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.
- Both Treasury and muni yields rose last week, with each led by the 30-year maturity.
- There was a notable upgrade for the Town of Holden, MA’s GO Bonds 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 Oct 03 - 07
- Treasury yields rose last week every day except Friday, led by the 30-year maturity.
- With the election being held in only a few weeks, the probability of a Fed interest rate hike is stable for December.
- Muni yields rose for all maturities.
- Hedge funds holding GO bonds seek to stop Puerto Rico from paying the Cofina debt.
Detailed Report
- Treasury yields rose last week across the curve, driven by ECB reports of building a consensus on prospective approaches to gale down asset purchases.
- The reports pushed European sovereign rates and Treasury yields higher.
- The U.S. Treasury’s 30-year maturity rose by 14 bps.
- However, yields declined on Friday in response to September’s employment report
- Though the U.S. economic data tone strengthened last week, the probability of a Fed rate hike in December remains stable, due to the upcoming election in few weeks.
- Muni yields for all maturities rose tremendously, due to a massive municipal new issuance followed by an increase in Treasury yields.
- Similar to Treasury yields, muni yields were also led by the 30-year maturity, which rose by 14 bps.
- Total new issue supply last week was $12.9 billion.
- This week’s new issuance is expected at $8.4 billion.
- Muni fund flows remained positive for the 53rd consecutive week at $325 million.
- After 52 weeks of consecutive inflow, high-yield muni bond funds reported net outflow last week.
- Due to the temporary increase in muni new issue supply, high-yield muni prices have cheapened versus U.S. Treasuries.
- Credit spreads have increased for traditional high-yield muni bonds, whereas they contracted for high yield but short duration muni bonds.
- Hedge funds holding Puerto Rico’s GO bonds are seeking help from the court to stop the Commonwealth from directing a portion of the island’s sales-tax revenue called Cofinas to repay its other debt, because it violates the island’s constitution.
Moody’s Upgrade/Downgrade
Upgrades:
Town of Holden, MA’s GO:
Moody’s Investors Service has upgraded to Aa2 from Aa3 the rating of the Town of Holden, MA’s GO. It reflects the town’s moderately-sized tax base and healthy financial position marked by sound reserves and liquidity levels. Structurally balanced operations leading to increases in reserves and liquidity could lead to an upgrade in rating.
Downgrades:
City of Hartford, CT’s GO:
Moody’s Investors Service has downgraded the city of Hartford, CT’s GO debt rating to Ba2 from Baa1. It reflects the challenges the city faces in achieving structurally balanced operations. An established trend of structurally balanced operations and a growth in reserves and liquidity could lead to an upgrade of the bond.
Treasury Notes Yield Report
| Year | Yield | +/- BPS in Week | +/- BPS in Month |
|---|---|---|---|
| 2-year | 0.83% | 7 | 7 |
| 5-year | 1.26% | 11 | 11 |
| 10-year | 1.72% | 12 | 12 |
| 30-year | 2.45% | 14 | 14 |
Municipal Index Curve Yields
| Year | Yield | +/- BPS in Week | +/- BPS in Month |
|---|---|---|---|
| 2-year | 0.86% | 4 | 4 |
| 5-year | 1.10% | 8 | 8 |
| 10-year | 1.64% | 13 | 13 |
| 30-year | 2.45% | 14 | 14 |
Yield Ratios: Municipal Bonds vs. Treasury Bonds
| Yield Ratios | Ratio (%) |
|---|---|
| 10-year AAA Municipal vs Treasury | 95% |
| 30-year AAA Municipal vs Treasury | 100% |
| High Yield Municipal vs High Yield Corporate | 87% |
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