Federated Pennsylvania Municipal Income Fund (A) PAMFX

Share Classes Product Type Asset Class Category
Mutual Fund Fixed Income Muni State Specific
As of 03-31-2018

Looking Back

Municipal bond and Treasury yields climbed higher as the Federal Reserve (Fed) raised short-term target rates at its March meeting amid the ongoing U.S. economic expansion. Concern that the Fed may excessively tighten monetary policy and the prospect of escalating trade conflicts as the Trump administration proposed targeted tariffs caused stock markets to decline and Treasury and municipal yields to retrace somewhat from their highs during the quarter. The new issuance of municipal bonds fell about 30% during the first quarter compared to the same period last year as the acceleration of deals into the fourth quarter of 2017 to beat the tax legislation left a diminished calendar of financings. Demand for municipal bonds was somewhat muted as banks and insurance companies reacted to the large corporate tax cut by selling a portion of their municipal holdings. Also, individual investor demand for bonds and municipal mutual funds was muted as total returns turned modestly negative.

Yields on AAA-rated 2-, 10- and 30-year municipal securities increased 9 basis points, 44 basis points and 41 basis points, respectively. Yields on 2-, 10- and 30-year Treasury securities increased 38 basis points, 33 basis points and 23 basis points, respectively.

The S&P Municipal Bond Index posted a loss of 0.92%. The 3-year component of the index posted a return of 0.15%, while the 10-year component returned -1.58% and the portion of the index maturing in 22 years and longer returned -1.27%. The AAA/Aaa component of the index returned -1.14%, the A-rated component returned -1.08% and the BBB-rated component returned -0.65%. The S&P Intermediate Municipal Bond Index posted a return of -1.09%. The S&P High Yield Municipal Bond Index returned 1.29%, but rose 0.43% when excluding sharply outperforming Puerto Rico bonds.

Pennsylvania Market Environment

During the first quarter of 2018, 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 likely 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 in the higher-rated categories (or unrated bonds of comparable quality) of the S&P Municipal Bond Pennsylvania Index (PAIG3). Bonds in the non-investment-grade category, below “BBB,” underperformed those in the higher-rated 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.