Federated Ohio Municipal Income Fund (A) OMIAX

Share Classes Product Type Asset Class Category
Mutual Fund Fixed Income Muni State Specific
As of 06-30-2018

Looking Back

Municipal bond yields were little changed while Treasury yields moved higher amid continued U.S. economic expansion, somewhat higher inflation and another increase in short-term target rates by the Federal Reserve. Yields on 2-, 10- and 30-year Treasury securities increased by 26, 12 and 2 basis points, respectively. In contrast, Municipal Market Data (MMD) 2- and 30-year AAA tax-exempt yields each decreased by 1 basis point, and the 10-year AAA tax-exempt yield increased by 4 basis points. Modest gross new issuance of municipal bonds combined with generally stable demand to support outperformance of municipal yields relative to Treasury yields. Gross new issuance of municipal bonds through June 2018 was down nearly 25% compared to the average level at midyear over the prior three years. The enactment of federal tax reform in 2017 accounts for much of the decline in new issuance this year. The federal tax bill eliminated tax-exempt advance refunding bonds and prompted a surge in municipal new issuance late last year, leaving a diminished calendar of financings.

The S&P Municipal Bond Index returned 0.91% for the quarter. The 3-year component of the index posted a return of 0.60%, the 10-year component returned 0.78% and the portion of the index maturing in 22 years and longer returned 1.39%. The AAA-, A- and BBB-rated components of the index returned 0.67%, 0.89% and 1.42%, respectively. The S&P Intermediate Municipal Bond Index returned 0.82%. The S&P High Yield Municipal Bond Index returned 2.99%, but rose 2.31% when excluding sharply outperforming Puerto Rico bonds.

Ohio Market Environment

Ohio is the seventh largest state by population in the U.S. and its gross domestic product per capita also ranks seventh among the states. Its economy remained stable and regained many of the jobs lost from the recession. Ohio’s job growth was below the national average after an initially strong post-recession recovery. The Manufacturing and Energy sectors showed some signs of softening, with better growth in Financial Services and Health Care during the reporting period. The state’s conservative budget management and continued growth have maintained solid financial performance and allowed for the absorption of several tax reforms that date back to fiscal year 2012. During the second quarter of 2018, Ohio maintained high levels of internal liquidity, moderate and affordable long-term liabilities and a statutory requirement to deposit year-end surplus revenues into a budget stabilization fund.

Performance

Investor appetite for yield in the low interest-rate environment increased municipal bond fund inflows and resulted in outperformance of bonds rated “BBB” (or unrated bonds of comparable quality) relative to bonds in the higher-rated categories (or unrated bonds of comparable quality) of the S&P Municipal Bond Ohio Index (OHIG3). Bonds in the noninvestment-grade category, below “BBB,” underperformed those in the higher-rated categories. The fund’s overweight position, relative to the OHIG3 Index, in “BBB” (or unrated comparable quality) debt during the quarter had had a positive impact on its performance. The fund’s underweight in bonds rated “AAA” (or unrated bonds of comparable quality) also made a positive contribution to performance as bonds in this rating category underperformed the OHIG3 Index.

Performance quoted represents past performance which is no guarantee of future results.

To view performance current to the most recent month end and for after tax returns, click on the Performance tab.

Click the Performance tab for standard fund performance.

Click the Portfolio Characteristics tab for information on quality ratings.

Strategy

The fund had a larger allocation to Pre-Refunded bonds, Industrial Development debt and Toll Road bonds than the OHIG3 Index. These sectors underperformed the OHIG3 Index during the quarter and provided negative excess return relative to the index. Pre-Refunded bonds are escrowed in Treasury securities until their most recent call date and have less sensitivity to changes in interest rates as a result. The fund maintained a higher portfolio allocation to Airport and Hospital revenue bonds. These allocations helped the fund’s performance due to the outperformance of these sectors relative to the OHIG3 Index.