• Longer term treasury and municipal yields increase for the week.

• Muni bond funds continued positive inflows for the second week in a row.

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

• Last Thursday, Fed Chair Janet Yellen reiterated the Fed’s plan to gradually raise rates and also addressed that it has no plans to keep rates low to allow a longer run of a “hot” economy.

• The Fed’s Balance Sheet showed an increase of $8.3 billion in assets from the week prior, bringing the total level to $4.46 trillion. The increase is due to a rise of $9.5 billion in mortgage-backed securities that offset a $2.0 billion decline in central bank liquidity swaps. Before you proceed, you might want to look at different economic indicators that can impact the bond market.

• The weekly change in Money Supply (M2) was positive at $39.1 billion, a large increase from the $7.0 billion from last week. With the stock market being slightly down for the last two weeks, investors are growing weary of the market’s all-time high, tending to sell their stocks and move into cash.

• The Housing Market Index released a measure of 67, slightly lower than the consensus amount of 69. However, the measure remains strong.

• Jobless claims came in at the lowest figure in 43 years, reporting 234,000 and down 15,000 jobs from the week prior. The consensus amount was reported at 255,000 and the new low suggests that the labor market is at one of the strongest levels in a long time.

• The Consumer Price Index came in at consensus estimates at 0.3% on a month over month change. On a year over year basis, the index was at 2.1%, higher than the previous measure of 1.7%. Energy has been the leading driver in the growth, posting four straight monthly gains.

• The Bloomberg Consumer Comfort Index reported 45.2, up from 45.1 from the week before. The measure is still very high but slightly down from the peak in mid-December of 46.7. It indicates that consumers feel confident with the strength of the economy, job market and real estate market.

• Short-term maturities in both treasuries and municipals had little movement, with the 2-year treasury remaining at 1.19% and the 2-year municipal yield dropping 1 bps to 1.12%. Longer term maturity yields increased, with the 10-year and 30-year treasuries increasing 7 bps and 6 bps respectively. On similar lines, both the 10-year and 30-year AAA-rated municipal yields increased by 12 bps from the week prior.

• Credit spreads declined for the week, with the 5-year maturity decreasing to 24 bps and the 10-year declining to 17 bps. The 30-year maturity has municipals yielding 2 bps higher than the 30-year treasury, showing that the tax-free investment is the better value.

• For the second week in a row, municipal bond funds saw inflows, with a total of $546 million. With interest rates now stabilized for the time being and no expected date for the next rate hike, investors are flocking back to the tax-free bond funds.

The state of Texas has issued $250 million of veterans bonds that are rated AAA by Moody’s. The bonds are offered to the Veterans Land Board of the State of Texas, designed to provide home loans to the state’s veterans. To browse through credit reports of other muni bonds issued by the State of Texas, click here.

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Moody’s Upgrades New Rochelle, NY’s GOLT Rating to Aa2: New Rochelle’s multi-year trend of surpluses and improvement to its financial position is the justification for the recent rating increase. The rating also incorporates the city’s expectation of drawing on financial reserves in fiscal 2017 and its forthcoming debt issuance as part of its 10-year capital plan. To explore additional credit reports about other muni bonds issued by the state of New York, click here.

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Moody’s Downgrades to Aa3 King County SD 415 (Kent), WA’s GO Bonds; Outlook Negative: The downgrade is due to the weakening of the district’s liquidity and reserve position last year and will likely remain weak for the next few fiscal years as the county attempts to replenish its General Fund Balance.

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