In this week s Commentary, we will discuss some signs of hope and optimism for local governments that are thinking of issuing bonds.

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1 April 11, 2017 Play Ball! The first week of April is often a time of hope and optimism, especially for baseball fans. Teams have just finished spring training and most fans are hopeful that this will be a winning season for their favorite team. Days are getting longer, the weather is warming, trees and flowers are budding, and Americans are looking forward to the activities of the spring and summer months. In this week s Commentary, we will discuss some signs of hope and optimism for local governments that are thinking of issuing bonds. Muni Yields Continue Slight Decline In our last Commentary published two weeks ago, we reported that yields on municipal bonds had declined, especially for medium to longer maturities. In the past two weeks, yields continued to decline, as shown in the table below. Trends in Municipal Bond Yields March 24, 2017 to April 7, 2017 March 24, 2017 April 7, 2017 Change AAA Yields* 5 Years 1.58% 1.49% -0.09% 10 Years 2.28% 2.17% -0.11% 20 Years 2.96% 2.86% -0.10% 30 Years 3.07% 2.97% -0.10% Bond Buyer 20 Bond Index** 3.91% 3.83% -0.08% Source: * Thomson Reuters Municipal Market Data ** The Bond Buyer. Average yield on a portfolio of municipal bonds maturing in 20 years, with an average rating of AA/Aa2. It is important to put these recent declines in perspective. The Bond Buyer Index, set at 3.83% last Thursday, is still more than 1% higher than it was last July when it hit the lowest level in over 45 years. But it has declined by.19% in the past four weeks and is now near the average of the past five years. In the past two weeks, muni yields have declined more than yields on U.S. Treasuries. For example, from March 24 through April 5, 2017, the yield on the 10-year Treasury

2 note declined by only 3 basis points (.03%) while the yield on a 10-year AAA-rated muni (as reported by Thomson Reuters Municipal Market Data) declined by 10 basis points (.10%). This is somewhat of a reversal of trends seen since the November elections, when muni yields increased more than Treasury yields. This was at least partly based on concerns that reductions in income tax rates being discussed by the Trump administration could reduce the value of federally tax-exempt munis, driving up yields. Some investors also believed that increased infrastructure spending could increase the supply of new muni bonds. In recent weeks, many investors have come to believe that significant tax reform and increases in infrastructure spending may take longer than expected, and may be less dramatic than previously thought. (The Bond Buyer, March 30, 2017). We have continued to see strong interest by underwriters in competitive sales of bonds, as shown in the attached Sale Results table. But the broader market has shown mixed signals on the demand for munis. The Bond Buyer (April 7, 2017) reports that municipal bond mutual funds reported net outflows of $287 million during the week of April 5, after inflows of $265 million the previous week. A separate report in The Bond Buyer on March 30 noted that foreign investors have increased their purchases of U.S. municipal bonds in recent months. Although foreign investors do not benefit from the taxexemption of interest, munis offer a better combination of yield and security than many other fixed rate investment options. Muni yields may have benefitted recently from the relatively light supply of new issues. The Bond Buyer reports that the weekly volume of new muni issues was $5.1 billion the week of March 27, $5.5 billion the week of April 3, and is expected to be approximately $5.7 billion this week. These are well below the weekly average of nearly $8.6 billion in 2016, which was a record year for municipal bond volume. It is reasonable to expect that the volume of new issues may increase in coming weeks as issuers take advantage of the reductions in yields over the last month. Jobs Report Delivers Mixed Messages The Bureau of Labor Statistics (BLS) released its monthly jobs report on Friday, April 7, 2017, and the signals were mixed. Non-farm payrolls increased by only 98,000 in March, the lowest total since May of 2016 and well below the consensus expectation of approximately 175,000. However, the unemployment rate (which is compiled from separate sources of data) declined from 4.7% to 4.5%, the lowest level since April of Employment increased in many sectors of the economy, but retail jobs decreased by 19,700, primarily due to closure of stores by JC Penney and other department store chains.

3 Market News International (April 7, 2017) reported that analysts blame the weak job creation number on negative weather effects, and anticipate a rebound in April. MNI also say the report is not expected to affect the Federal Open Market Committee s decisions on future rate hikes. Expectations for Interest Rate Trends A recent report by Moody s Analytics ( Bond Yields Will Fall When the Equity Bubble Bursts, April 6, 2017) takes a somewhat contrarian point of view on the future direction of U.S. interest rates. The report cites a consensus outlook that the 10-year Treasury yield will increase to 3.3% by the end of 2018, from its current level around 2.4%. Some of the factors often cited for this sentiment include expectations of increased inflation and increased economic growth. The authors of the report state that U.S. stocks are currently significantly overvalued in terms of the ratios of stock prices to both profits and revenues. They contend that there is a significant risk of a deep slide in stock prices, which often leads investors to sell stocks and purchase bonds and other fixed-rate investments in a flight to quality movement. Their conclusion is that when the equity bubble bursts, both the federal funds rate and Treasury bond yields will fall. All of this is a good reminder that predicting the future direction of interest rates may be even more perilous than predicting your favorite baseball team s season record in early April. If you represent a state or local government that is thinking of issuing debt either to fund new projects or to refinance existing debt we encourage you to contact your Ehlers municipal advisor to discuss the timing of your debt issuance. The recent declines in rates may prompt many local governments to accelerate their debt issuance plans. But there also may be great opportunities for debt issuance for those who choose to wait.

4 Investment Trends Ehlers Investment Partners Trending Flat The yield curve continued its trend of flattening over recent weeks. Yields on 2-5 year securities have dipped slightly, while yields on short-term securities, such as the 30-day T-Bill, have remained stable. The yield on a 5-year agency note is approximately 2.20%, compared to 2.40% just a month ago. Alternatively, the yield on a 30-day T-Bill has remained relatively level over the same period (0.77% on March 14, compared to 0.76% on Monday). Long-term yields are more sensitive to changes in economic outlook, while short-term yields are more heavily influenced by the actions of the Federal Open Markets Committee. The flattening curve suggests the consensus economic outlook is not as strong as it once was, as concerns over President Donald Trump's ability to work with congress mount. Global issues in North Korea and Syria have also contributed to market uncertainty. To discuss the effects of a flattening yield curve on your portfolio, and to identify potential opportunities on the curve, reach out to an investment advisor at Ehlers Investment Partners. 1 Year Ago 1 Month Ago Today 1 Yr Certificate of Deposit % % % 3 Yr Certificate of Deposit % % % 5 Yr US Agency Note % % % Money Market Funds 0.10%-.25% 0.30%-0.65% 0.30%-0.65% Source :Bloomberg, Wall Street Journal Trends in Investment Returns April 11, 2017 IMPORTANT INFORMATION: PLEASE READ The information contained herein reflects, as of the date hereof, the view of Ehlers & Associates, Inc. (or its applicable affiliate providing this publication) ( Ehlers ) and sources believed by Ehlers to be reliable. No representation or warranty is made concerning the accuracy of any data compiled herein. In addition, there can be no guarantee that any projection, forecast or opinion in these materials will be realized. Past performance is neither indicative of, nor a guarantee of, future results. The views expressed herein may change at any time subsequent to the date of publication hereof. These materials are provided for informational purposes only, and under no circumstances may any information contained herein be construed as advice within the meaning of Section 15B of the Securities and Exchange Act of 1934, or otherwise relied upon by you in determining a course of action in connection with any current or prospective undertakings relative to any municipal financial product or issuance of municipal securities. Ehlers does not provide tax, legal or accounting advice. You should, in considering these materials, discuss your financial circumstances and needs with professionals in those areas before making any decisions. Any information contained herein may not be construed as any sales or marketing materials in respect of, or an offer or solicitation of municipal advisory service provided by Ehlers, or any affiliate or agent thereof. References to specific issuances of municipal securities or municipal financial products are presented solely in the context of industry analysis and are not to be considered recommendations by Ehlers.

5 Selected Sale Results March 27, April 07, 2017 Sale Date Issuer St Par Amt (in millions) Issue Underlying Rating Credit Enhanced Rating BQ TIC / NIC Ave. Life Maturities # of Bidders Winning Bidder/Purchaser 03/27/17 Shawnee, City KS 9.22 Internal Improvement and Refunding Bonds Aa1 Y 1.89% Piper Jaffray 03/27/17 Anoka County MN GO Capital Improvement Refunding Bonds AA+ N 2.27% Jefferies 03/27/17 New London - Spicer SD No. 345 MN 0.58 GO Facilities Maintenance Bonds AA+ Y Y 1.86% Northland Secs 03/27/17 Glendale, City WI 2.70 Taxable GO Promissory Notes Aa3 N 2.63% Piper Jaffray 03/27/17 Glendale, City WI 4.30 GO Prom Notes Aa3 Y 2.25% BOK 03/27/17 Eau Claire Area SD WI GO School Improvement Bonds AA N 2.73% Citigroup 03/27/17 Lakeland Union HS District WI 5.06 GO School Improvement Bonds Aa2 Y 2.47% Baird 03/28/17 Colorado Mountain College CO Certificates of Participation Aa3 N N/A N/A Neg. Stifel 03/28/17 Richfield, City MN 9.13 GO Street Reconstruction Bonds AA+ Y 2.49% PNC Capital Mkts 03/28/17 Fillmore Central SD No MN 0.85 Taxable GO OPEB Refunding Bonds AA+ Y N 2.94% Northland Secs 03/28/17 CDA of the City of Baraboo WI Interim Community Development Revenue Bonds NR N 3.78% Northland Secs 03/28/17 Milwaukee Area Tech College District WI 1.50 GO Prom Notes Aa2 N 1.39% Fidelity Capital 03/29/17 Colorado Educational and Cultural Facilities Auth CO Taxable Revenue Bonds Aa1 N N/A N/A Neg. JPMorgan 03/29/17 Jefferson Center Metrpolitan District No. 1 CO Revenue Completion Bonds NR N N/A N/A Neg. D.A.Davidson 03/29/17 Genoa City Jt. SD No. 2 WI 6.10 GO School Building and Improvement Bonds A1 Y 3.39% BOK 03/30/17 Northglenn, City CO Certificates of Participation AA- N 3.18% UMB Bank 04/03/17 Bloomington, City MN 1.17 GO Water Utility Bonds AAA N 1.94% Stifel 04/03/17 Bloomington, City MN 1.42 GO Charter Bonds AAA N 1.93% Stifel 04/03/17 Winthrop, City MN 1.48 GO Bonds A+ Y 2.93% United Banker's Bk 04/03/17 Monticello SD No. 882 MN 5.16 GO Facilities Maintenance Bonds Aa2 Y Y 2.35% FTN Fin Cap Mkts 04/03/17 Independence, City WI 2.24 GO Corp Purp Bonds NR Y 3.43% Northland Secs 04/04/17 Cloquet, City MN 8.40 GO Sales Tax Revenue Bonds AA Y 2.62% Janney Montgomery 04/05/17 Colorado Dept. of Transportation CO Certificates of Participation Aa2/AA- N N/A N/A Neg. Piper Jaffray 04/05/17 Ottawa, City KS 0.56 Taxable GO Bonds A1 N 2.92% UMB Bank 04/05/17 Ottawa, City KS 5.00 GO Bonds A1 Y 1.95% UMB Bank 04/05/17 Spicer, City MN 0.83 GO Bonds AA- Y 2.78% United Banker's Bk 04/05/17 Madison Area Tech College District WI 4.24 GO Prom Notes AAA N 2.27% Hutch 04/06/17 Rock River Water Reclamation District IL 9.14 GO Refunding Alternate Bonds Aa2 Y 2.53% D.A. Davidson (800)