Weekly Market Update

FED RAISES RATES FOR THE THIRD TIME IN 2017, U.S. TREASURY YIELDS NOSE-DIVE UPON THE NEWS

Thursday, June 15, 2017

On Wednesday, in a much anticipated move, the FOMC Board voted eight to one to increase interest rates, with Neel Kashkari, Minneapolis Fed President, being the sole objection for the second time this year. The increase will bring the federal funds rate to a range between 1.00% and 1.25%. The Board's decision was driven by an expectation that inflation will hover near the two percent target for the next 12 months. Despite the broad expectation of a rate hike, U.S. Treasury yields plunged to the lowest levels since before the 2016 presidential election proceeding the announcement. The two-year UST note, typically the most reactive to interest rate changes, initially declined two basis points before tumbling eight basis points in total, while the 10-year UST bond decreased more than six basis points, reaching its trough since November 10, 2016, and the 30-year UST bond fell more than seven basis points, its lowest since November 8, 2016. It is widely projected that the Fed will raise rates one more time in 2017.

In Other News

  • On Wednesday, Harvard University President Drew Faust announced that she would step down in 2018. Faust was lauded as the first female President of Harvard. She has served as Harvard's President since 2007.
  • This past week, Harvard University revoked offers of admission from at least 10 students due to offensive messages sent on social media. The University has indicated a zero-tolerance policy for such behavior and that their decision is final and will not be reversed.
  • On Monday, administrators at the University of Colorado at Boulder were sanctioned for failing to report alleged domestic violence. Last December, a woman contacted head football coach Mike McIntyre to report that one of his assistant coaches had abused her over a two-year timeframe. McIntyre informed his boss, Athletic Director Rick George, who in turn contacted Chancellor Phillip P. DiStefano. No further reporting was done.
  • In a court ruling made on Tuesday, it was determined that Iowa State University violated students' right to free speech. The University forbid student activists the use of the University's trademarks to encourage modifications to marijuana laws. The U.S. Court of Appeals for the Eight Circuit ruled that the allowed use of the trademarks for any reason did not specifically endorse the viewpoint and may be used for any speech that is constitutionally protected. The decision came after the University appealed to a ruling made in February.
  • A recently released Pew report uncovered that 21 states, including highly-encumbered states, do not make use of debt affordability studies before issuing additional debt. The report comes as the rate of economic growth has been reduced and rating agencies have sprung into action by downgrading the credit rating of certain states.
  • On Monday, Moody's released its annual private university median report, alongside a Sector In-Depth report highlighting trends at private institutions in FY16. In the report, Moody's highlighted trends at private institutions in FY16 including: stable operating performance and increasing expenses, increasing number of institutions facing financial stress, moderate decline in operating reserves in relation to expenses for the second year in a row, highly concentrated wealth, stable debt burden, and continued disparity in capital spending between small and large institutions.

Rating Agency Update

  • Moody's upgraded Long Island University to Baa2. The outlook is stable.
  • Moody's downgraded University of Illinois ratings. The Auxiliary Facility System Revenue Bonds were downgraded to A1, Certificates of Participation to A1, and South Campus Development Bonds to A2. The outlook is negative.
  • Moody's downgraded Eastern Illinois University Auxiliary Facility System Revenue Bonds and Certificates of Participation to B2 and Caa2, respectively. The outlook is negative.
  • Moody's downgraded Illinois State University to Baa2. The outlook is negative.
  • Moody's downgraded Southern Illinois University to Ba2. The outlook is negative.
  • Moody's downgraded Northeastern Illinois University's Certificates of Participation to B3. The outlook is negative.
  • Moody's downgraded Northern Illinois University's Auxiliary Facility System Revenue Bonds to Ba2 and Certificates of Participation to Ba3. The outlook is negative.
  • Moody's downgraded Illinois State University to Baa2. The outlook is negative.
  • S&P affirmed Yeshiva University's rating of BBB-. The outlook is stable.
  • S&P assigned A- to Seton Hall University's Series 2017D tax-exempt bonds and Series 2017E taxable bonds. The outlook is stable.
  • S&P affirmed University of Minnesota Foundation's rating of AA. The outlook is stable.
  • S&P affirmed University of Idaho's A+ rating. The outlook is stable.
  • S&P affirmed Fairfield University's A- rating. The outlook is stable.