Public Finance Market Update: July 2017

PMA public finance market update services January Aaa BQ vs. June AAA BQ - July 2017

Credit Spreads and Change in IL Impact

Graph 1 (above left) sheds light on the impact of a credit differential between a AAA bond issue and a Aa2 bond issue. The AAA issue sold at approximately 12-30 bps lower than the Aa2 issue, which is expected given the two notch rating advantage. Interestingly, this differential tightened in years 9 through 11 of the yield curve and was wider earlier on the curve. Graph 2 (above right) shows how the impact of the state situation has changed since the beginning of 2017. One may have assumed that the IL impact would have continued to worsen as more time passed without a budget. However, there is virtually no change in spread differential between the January Aaa bond issue and the more recent June AAA bond issue. PMA will continue to monitor these spreads now that the State has passed a budget.

Bond Market Battles Fed

In June, Fed policymakers lifted the Fed Funds Rate to a range of 1.00-1.25% and projected one more increase this year and three more hikes in 2018. Traders in the market for fed funds futures don’t agree. They see a 57% probability that the Fed lifts rates again in 2017. Furthermore, the yield on two-year Treasury bonds implies the Fed will not raise rates over the next two years. The disagreement might stem from economic data. Inflation data has been soft, favoring bond market participants who see little inflation risk. The Fed’s own economic projections showed their preferred inflation measure is expected to come in at 1.6% in 2017, down from 1.9%. But supporting further rate hikes, the Fed’s projections for GDP increased and unemployment projections decreased.  

Source: Financial Times, Wall Street Journal,  Bloomberg


Download Full PDF

DISCLAIMER: This document was prepared by PMA Securities, Inc. for clients of the firm and its a liated PMA entities, as defined below. It is being provided for informational and/or educational purposes only without regard to any particular user’s investment objectives, financial situation or means. The content of this document is not to be construed as a recommendation, solicitation or offer to buy or sell any security, financial product or instrument, or to participate in any particular trading strategy in any jurisdiction in which such an o er or solicitation, or trading strategy would be illegal. Nor does it constitute any legal, tax, accounting or investment advice of services regarding the suitability or profitability of any security or investment. Although the information contained in this document has been obtained from third-party sources believed to be reliable, PMA cannot guarantee the accuracy or completeness of such information. It is understood that PMA is not responsible for any errors or omissions in the content in this document and the information is being provided to you on an “as is” basis without warranties or representations of any kind.

Securities, public finance services and institutional brokerage services are offered through PMA Securities, Inc. PMA Securities, Inc. is a broker-dealer and municipal advisor registered with the SEC and MSRB, and is a member of FINRA and SIPC. Prudent Man Advisors, Inc., an SEC registered investment adviser, provides investment advisory services to local government investment pools and separate accounts. All other products and services are provided by PMA Financial Network, Inc. PMA Financial Network, Inc., PMA Securities, Inc. and Prudent Man Advisors (collectively “PMA”) are under common ownership.

Securities and public finance services o ered through PMA Securities, Inc. are available in CA, CO, FL, GA, IL, IN, IA, KS, MI , MN , MO , NE, OH, OK, PA, SD, TX and WI. This document is not an offer of services available in any state other than those listed above, has been prepared for informational and educational purposes and does not constitute a solicitation to purchase or sell securities, which may be done only after client suitability is reviewed and determined. All investments mentioned herein may have varying levels of risk, and may not be suitable for every investor. PMA and its employees do not o er tax or legal advice. Individuals and organizations should consult with their own tax and/or legal advisors before making any tax or legal related investment decisions. Additional information is available upon request.

©2017 PMA Securities, Inc.


P  :  800.783.4273       E  :  INFO@PMANETWORK.COM       A  :  2135 CityGate Ln, 7th Floor, Naperville, IL 60563   -    © 2015, PMA Financial Network, Inc. 

chicagoland website design and development, website hosting illinois, cms web design chicago Website by: Andromeda Technology Solutions

Message: You will now be redirected to a third-party, PMA-partnered website. Select CONTINUE to confirm that you want to leave and view our current employment opportunities. Select CANCEL to remain on this page.