• With the Fed expected to raise rates in March, bond yields increased.

• Muni bond funds see first outflow after seven weeks of positive inflows.

• Jobless claims see lowest levels in 44 years.

• Be sure to review our previous week’s report to track the changing economic situation.

• On Wednesday, the U.S. equity markets roared, with the Dow Jones Industrial Average increasing by over 300 points or 1.45%. This might have been the after effects of President Trump’s address to the Congress on Tuesday, where he mentioned improving infrastructure, education and healthcare.

• Fed President Janet Yellen indicated on Friday that a rate hike is very likely during the March 14-15 meeting. As expected, the bond market saw prices drop with a spike in yields.

• Quarter-over-quarter GDP change was reported at 1.9%, which was lower than than the consensus of 2.1%. Durables, which reflect vehicle sales, were the standout at a 11.5% quarter-over-quarter rate, while non-durables had a 2.8% quarter-over-quarter rate.

• The Fed’s balance sheet decreased by $10.7 billion in assets, bringing the total level to around $4.46 trillion. The weekly decrease is based on mortgage-backed securities, which fell $10.4 billion.

• The weekly change in money supply (M2) increased by $10.7 billion, a big increase from last week’s modest $700 million amount.

• Jobless claims saw the lowest levels since March 1973 with a decline of 19,000 to 223,000. This brings down the four-week average to 234,250 and is a clear indication a strengthening job market.

• The consumer confidence index was reported at 114.8, which exceeded the consensus range and increased from the prior measure of 111.6 in January. This report reflects that the economy is getting better, driven by a strong labor market and a bullish equity market.

Keep track of economic indicators that may impact the muni market.

• Treasury yields increased across all maturities, with the largest gain coming from both the 2-year and 10-year Treasury yields, which increased by 17 bps. The 30-year Treasury also saw a big increase, up 12 bps to 3.07%. Municipal yields increased in both the 10-year and 30-year while the 2-year remained the same. The 2-year AAA-rated municipal yield remains at 1.01% while the 10-year and 30-year AAA-rated yields increased by 12 and 11 bps, respectively.

• Credit spreads expanded from the previous week, with the largest spread remaining between the 5-year Treasury and the AAA-rated municipal at 38 bps. The 30-year AAA-rated municipal continues to yield 13 bps higher than its Treasury equivalent.

Be sure to check our Market Activity section to keep track of daily muni trades and historical trades of muni CUSIPs across the U.S.

• After seven weeks of inflows, municipal bond funds had an outflow of $241 million. With the Fed indicating that there may be a rise in interest rates this month, investors seem to be fleeing from bond funds that are likely to be negatively impacted.

The Dormitory Authority of the State of New York issued $125 million of Series 2017A Revenue Bonds for Columbia University. The bonds are rated Aaa by Moody’s and AAA by S&P and the proceeds are being used to help finance various construction and renovation projects of the university. To browse credit reports of other muni bonds issued by the Dormitory Authority of the State of New York, click here.

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Moody’s upgrades Santa Barbara Unified School District, CA’s GO Bonds to Aa2: Moody’s upgraded the Santa Barbara Unified School District in California GO Bonds to Aa2 from Aa3. The upgrade affects $173.6 million in debt outstanding and is due to the district’s large tax base, stronger reserve and liquidity levels and improved financial profile. To explore additional credit reports about other muni bonds issued by the State of California, click here.

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Moody’s Downgrades Richmond Community Schools, MI’s GO to A2: The downgrade to A2 of the GOULT bonds from Richmond Community Schools is due to the district’s thinning reserves and falling student enrollment. The area also has a moderately-sized tax base and high exposure to unfunded pension liabilities. To explore additional credit reports about other muni bonds issued by Richmond Community Schools in Michigan, click here.

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