• With the Fed expected to raise rates in next week’s meeting, both Treasury and municipal yields increased.

• Muni bond funds see second week of outflows.

• Credit spreads between Treasuries and AAA-rated municipal bonds continue to expand.

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

• The Fed is scheduled to meet Tuesday and Wednesday of this week, and there are indications that interest rates will be raised by 0.25 bps.

• Last week, the Fed’s balance sheet increased by $1.8 billion in assets, bringing the total level to around $4.46 trillion. The increase is based on other assets, which rose $2.6 billion to offset a $0.6 billion decrease in central bank liquidity swaps.

• The weekly change in money supply (M2) increased by $50.8 billion, the second increase in a row.

• January’s international trade measure came in at the consensus amount of -$48.5 billion, based on growing foreign consumer and vehicle imports and higher prices for imported oil.

• On the same note, import and export prices came in around expectations. Import prices had a month-over-month increase of 0.2%, meeting consensus measures. Exports surpassed the consensus and increased 0.3% on a month-over-month measure. For the year-over-year measures, both import and export prices surpassed the consensus and increased by 4.6% and 3.1%, respectively.

• Jobless claims saw an increase of 20,000 to 243,000, up from last week’s record low. This raises the four-week average to 236,500. However, the number is still considered low, proving the job market continues to perform strongly.

• The Gallup U.S. Consumer Spending Measure was reported at $101, considerably higher than the $88 level from January. This is the highest level since February 2008, indicating that consumers are spending more money on average.

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

• Treasury yields increased again for the second week across all maturities, with the 2-year Treasury yield increasing by 5 bps. The 10-year and 30-year Treasuries also saw big increases, up by 10 bps and 9 bps, respectively. Municipal yields also increased across all maturities, with the 2-year AAA-rated municipal yield increasing by 2 bps. The 10-year and 30-year AAA-rated municipal yields both increased by 6 bps.

• Credit spreads continued to expand from the previous week, with the largest spread remaining between the 5-year Treasury and the AAA-rated municipal at 43 bps. However, the 30-year AAA-rated municipal continues to yield 10 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.

• For the second week in a row, municipal bond funds posted outflows of -$85 million. With the Fed indicating a possible rise in interest rates this month, investors seem to be fleeing from bond funds that are likely to be negatively impacted.

The Trustees of the California State University issued two Series 2017A revenue bonds this week. One of the issues is over $102 million and matures on November 1, 2042, while the other issue is over $122 million and matures on November 1, 2047. The bonds are rated Aa2 by Moody’s and AA- by Standard and Poor’s. To browse credit reports of other muni bonds issued by the State of California, click here.

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Moody’s Upgrades Ontario-Montclair SD, CA’s GO Bonds to Aa2; Assigns Aa2 to 2016 Election GOs, Series 2017A: The upgrade to Aa2 effected $82.7 million in general obligation bonds by the Ontario-Montclair School District in California. The area has shown a growing tax base and a strengthening financial position, including a growing general fund and increased level of liquidity. To explore additional credit reports about other muni bonds issued by the Ontario-Montclair School District in California, click here.

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Moody’s Downgrades Niles, OH’s GOLT Debt to Baa3; Outlook Negative: The downgrade to Baa3 from Baa2 affects $2.8 million of GOLT bonds from the city of Niles, Ohio. The city has been in a declining financial position, with a small tax base, debt burdens and a long-term risk of two underfunded defined benefit pension plans. To explore additional credit reports about other muni bonds issued by the State of Ohio, click here.

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