Federated Ohio Municipal Income Fund (A) OMIAX

Share Classes Product Type Asset Class Category
Mutual Fund Fixed Income Muni State Specific
As of 09-30-2017

Muni Bond Market Q3 2017

Treasury yields rose modestly during the third quarter of 2017 amid indications of improving U.S. and global growth, heightened prospects for stimulative U.S. tax policy and the beginning of gradual balance-sheet reduction by the Federal Reserve. Continued low inflation and bouts of risk aversion related to potential conflict between the U.S. and North Korea offered countervailing downward pressure on market yields during the quarter. Two-year Treasury yields increased by 10 basis points, while 10- and 30-year Treasury yields both increased by 3 basis points. Municipal bond yields followed a similar pattern, with steady inflows into municipal bond funds and modest new issuance supporting some outperformance for short- and intermediate-term municipal bonds relative to Treasuries. Municipal Market Data (MMD) 2-year AAA tax-exempt yields decreased 6 basis points, while 10- and 30-year AAA tax-exempt yields increased by 1 and 5 basis points, respectively.

The S&P Municipal Bond Index posted a return of 0.99%. The 3-year component of the index returned 0.61%, the 10-year component returned 1.18% and the portion of the index maturing in 22 years and longer returned 0.86%. The AAA/Aaa component of the index returned 0.72%, the A-rated component returned 1.46% and the BBB-rated component returned 2.08%. The S&P Intermediate Municipal Bond Index posted a return of 1.07%. The S&P High Yield Municipal Bond Index posted a loss of 0.08%, but rose 2.26% when excluding sharply underperforming 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. The state’s 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 sector 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 third quarter of 2017, 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 rated in the higher rating categories (or unrated bonds of comparable quality) of the OHIG3 Index. Bonds in the noninvestment-grade category, below “BBB,” underperformed the higher rating 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 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 OHIG3 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.