Spike in SIFMA Municipal Swap Index & March 2016 Geo Scores

April 5th, 2016

This week we review our proprietary DIVER Geo Score, highlight the best and worst performing States as well as provide you a link to get the scores themselves.  We also highlight the recent spike in the SIFMA Municipal Swap Index.

March Geo Scores

On April 4, we released the most recent DIVER Geo Scores for States, counties and cities. The DIVER Geo Score represents a relative score of the economic health of a U.S. State, county or city. Based on a scale of 0-10, with 10 being the best, this data is updated monthly and is calculated from multiple economic and demographic factors related to three primary data categories—employment, income and housing.

The DIVER Geo Scores are available here.

04052016

At the State level, Florida continues to show steady improvement from the low levels of previous years.

Colorado has been an outperformer due to labor market strength.  Unemployment is very low (3.0%) and wage levels are above national averages and growing faster than in other States.

New York State has recovered from weakness shown in early 2015.  Its current Geo Score (6.2) is very close to its long term average (6.4).

The list of laggards continues to be dominated by energy producing States.

04052016-2

Counties in Florida show improvement relative to counties in other States.  Seven of the ten most improved large Counties over the last year are in Florida.  Continued recovery from the housing crisis, as reflected in declining foreclosure rates, is contributing to economic strength. As we have pointed out before, the recovery in Florida is somewhat uneven.  Volusia County is one the worst national performers over the last year.

04052016-3

Perhaps showing spillover impacts from the difficulties in Atlantic City, NJ, Camden County, despite a recent uptick, has been one of the worst performing counties in the nation.

04052016-4

Cities in Florida dominate the list of best performing cities and energy/commodity cities fill the list of worst performing.

04052016-5

Chart of the Week:  The End of ZIRP in Munis or the Impact of MMF Reform?

While every increase in short term rates can look dramatic, the behavior of the SIFMA Municipal Swap Index over the last 4 weeks is remarkable.  The SIFMA Municipal Swap Index measures the average rate for high grade municipal VRDO’s.

Due to the Federal Reserve’s easy monetary policy, and the shift of short-term municipal borrowings to the bank loan market, the rate has been extraordinarily low for the last several years.

04052016-6

In the past 6 weeks the rate has risen from .01% to .40%.  This does not appear to be due to the usual seasonal tax-time pressures, which usual occur in mid-April.

The rate is still low in absolute historical terms and relative to taxable short-term rates like 3-month LIBOR and 3-month Treasury Bills, which started climbing in October 2015.

While still low, we think such a dramatic shift bears watching.  As we saw during the financial crisis, developments in the money markets can have significant knock-on effects in other parts of fixed income.

 

Have a great week,

Michael Craft, CFA