Federated Pennsylvania Municipal Income Fund (A) PAMFX

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.

Pennsylvania Market Environment

During the second 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 noninvestment-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.