Exports are Down in Volume and in Price, Municipals Have Outperformed, and Good News
Regarding Chicago

January 11th, 2016

This week we update our analysis of export volumes. We also take a brief look at the relationship of municipals to Treasuries and its potential impact on supply.

Exports are Down in Volume and in Price

Last week the Census Bureau released its statistics for U.S. exports as of November.

These statistics show that the dollar value of U.S. exports continues to decline.  Between November 2014 and November 2015, exports from the U.S. declined by 7%.


The declines seem dramatic, but the news is not quite as bad as it seems.  As we have pointed out in the past, because this statistic is calculated in dollars, price changes can cause deviations.  In this particular case, the decline in commodity prices is a contributing factor. As commodity prices have dropped, so has the dollar value of exports.

Import (and export) prices have decreased every month since August 2014.


The role of commodity prices in the export statistics can also be seen at the State level.  Export declines in energy States Texas and Louisiana have been large contributors to the national drop.


The large contribution of California to the national decline is partly due to commodity prices (diamonds, petroleum) and partly due to its significant contribution to overall U.S. exports (11% of total).

New York’s largest exports (33%) are diamonds, gold and jewelry.  Gold is a significant (6%) export for Florida, but the role of commodities there is not as clear-cut.

If we look at export data based on container volumes, we also see declines in exports, but they are not quite as extreme as the price-dependent statistics from Census.


Outbound loaded volumes from the Port of Los Angeles and the Port of Long Beach have been declining at 6% year over year for the last 3 months.  It has become clear that the declines in late 2014 and early 2015 were partly due to fundamental weakness, and not solely due to disruptions caused by labor disagreements between the ports and their unions.

Municipals Have Outperformed

Positive technicals in the form of a light calendar and seasonally strong cash flows have lead to the outperformance of municipal bonds vs. other fixed income asset classes.

The yield on the Bond Buyer 20 Bond Index is between 30 and 40 basis points lower than expected for the current levels of Treasury rates.


In the coming weeks, municipals are likely to underperform taxables as the impact of the strong beginning of the year cash flows dissipates and the new issue calendar builds.

The relatively low level of municipal yields and the flattening of the yield curve, could lead to more new issue supply than many are expecting.  These two factors are combining to make the economics of advance refundings issues more attractive than anytime in the last 6 years.


In an advance refunding, an issuer essentially sells borrows at a long maturity municipal rate and invests the proceeds at a short maturity Treasury rate.  The chart above shows a proxy for this transaction:  the yield of the Bond Buyer 25 Bond Revenue Index compared to the 5 year Treasury rate.

Good News Regarding Chicago:  They File Disclosure (Just) on Time

We have observed that fiscal problems at troubled credits in the municipal market have often been paired with poor disclosure practices.

This is not true in the case of Chicago.  In their Continuing Disclosure Agreements, they have pledged to file the Annual Audited Financial Statements within 210 days of the end of their fiscal year. In the past 5 years, they have met this promise.  One interesting note, the Chicago’s Audits are generally available about a month before the city actually files them with the MSRB.


For fiscal year 2014, the Audit was available June 30, but was not filed until July 29 (the exact due date).


Have a Great Week,

Michael Craft, CFA