Federated Pennsylvania Municipal Income Fund (A) PAMFX

Share Classes Product Type Asset Class Category
Mutual Fund Fixed Income Muni State Specific
As of 12-31-2017

Muni Bond Market Q4 2017

Yields on intermediate- and short-term Treasury securities increased, while yields on long-term Treasury securities declined during the fourth quarter of 2017 amid ongoing moderate U.S. economic expansion, incremental tightening of monetary policy by the Federal Reserve, continued modest inflation and enactment of federal tax cuts in December. Two- and 10-year Treasury yields increased by 40 and 7 basis points, respectively, while the 30-year Treasury yield decreased by 12 basis points. Municipal bond yields followed a similar pattern over the quarter, after some bouts of volatility related to a record surge in municipal issuance late in the year ahead of the effective date for tax-policy changes. The surge in supply was met with strong demand, thus allowing yields on intermediate- and long-term municipal bonds to decline more than was observed in the Treasury market. Municipal Market Data (MMD) 2-year AAA tax-exempt yields increased 56 basis points, while the 10- and 30-year AAA tax-exempt yields decreased by 2 and 30 basis points, respectively.

The S&P Municipal Bond Index posted a return of 0.64%. The 3-year component of the index returned -0.92%, while 10-year component returned 0.60% and the portion of the index maturing in 22 years and longer returned 2.14%. The AAA/Aaa component of the index returned 0.40%, the A-rated component returned 0.87% and the BBB-rated component returned 1.55%. The S&P Intermediate Municipal Bond Index posted a return of 0.11%. The S&P High Yield Municipal Bond Index returned 0.96%, but rose to 2.00% when excluding sharply underperforming Puerto Rico bonds.

Pennsylvania Market Environment

During the fourth quarter of 2017, Pennsylvania was the sixth largest state by both population and gross state product. Following decades of a declining manufacturing base, its rejuvenated urban areas have become its economic growth engine. The education and medical sectors have been driving the employment base in these areas. Pennsylvania maintained credit strengths that include a stable and less-volatile economy than the overall U.S. economy, above-average income levels and a pension reform plan which likely will lead to full funding of the Commonwealth’s pension obligations. The contentious political environment led to a lengthy stalemate and delayed the passage of its 2017 budget. Pension reform passed in 2010 put the pension plans on a path to be fully funded within 30 years, subject to contribution collars limiting increases in annual contributions, although pension will continue to be a key credit issue going forward.


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 PAIG3 Index. Bonds in the noninvestment-grade category, below “BBB,” underperformed the higher rating categories. The fund’s overweight position, relative to the PAIG3 Index, in “BBB” (or unrated comparable quality) debt during the quarter 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 PAIG3 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.


The fund maintained a higher portfolio allocation to Toll Road, Senior Care and Water & Sewer revenue bonds. These allocations negatively impacted the fund’s performance due to the underperformance of these sectors relative to the PAIG3 Index. Also, the fund’s underweight to state and local General Obligation bonds had a negative impact on performance as they outperformed the index during the quarter.