Federated Intermediate Corporate Bond Fund (SS) INISX

Share Classes Product Type Asset Class Category
Mutual Fund Fixed Income Corporate Bond
As of 09-30-2018


  • Market sentiment driven by geopolitical and trade concerns
  • The Federal Reserve (Fed) sees further steady rate increases with a solid fundamental economic backdrop
  • The fund remains in a short duration posture

Looking Back

The litany of geopolitical risk was not enough to derail the U.S. economy or markets in the third quarter. Increasingly harsh trade rhetoric, the imposition of sanctions on Chinese imports, uncertainty in countries such as Turkey and Argentina, as well as on-going instability in Italy and the on-again, off-again Brexit talks reared their heads in August, but markets were able to shake these off and rally in July and September, and for the quarter as a whole. Renewed U.S. sanctions on Iran moved forward, raising the prospect of crude oil supply disruption, higher prices and possibly inflation as well. The real story, however, was the continued strong performance of the U.S. economy, which Fed Chair Jerome Powell called extraordinary. The labor market continued to strengthen, as average hourly earnings have risen 2.9% over the last year, monthly employment gains have averaged 207,000 in 2018 and weekly jobless claims have plumbed to 50-year lows. Reflecting this growth, surveys of consumer confidence reached highs not seen since 2000 and have contributed to steady gains in retail spending. Since consumer spending accounts for nearly 70% of U.S gross domestic product (GDP), a confident consumer implies solid economic growth, especially important so near the all-important Christmas shopping season. In its September meeting statement, the Fed cited the strengthening labor market and strong rate of economic activity as reasons to continue raising the federal funds rate. The Fed sees continued strong, but slowing, growth in 2019, with unemployment falling to 3.5%, as well as higher, but well-behaved, inflation.

During the quarter, Treasury yields rose across the yield curve, again driven by expectations for Fed activity at the front end. The yield curve bear-flattened, as 2-year Treasury yields rose from 2.53% to 2.82%, and 30-year yields rose from 2.99% to 3.23%. Equities, high yield and emerging-market debt outperformed other assets in the quarter, while all major fixed-income sectors outperformed comparable-duration Treasuries.

In the credit focused sectors for the quarter, the Bloomberg Barclays U.S. Credit Index (BBCI) had total returns of 0.89%, with the lower-quality sectors outperforming. Single-A rated sectors had total returns of 0.68% compared to 1.35% for BBBs. In the intermediate area, the Bloomberg Barclays U.S. Intermediate Credit Index (BBICI) had total returns of 0.73%, with single-A rated sectors returning 0.65% compared to 0.99% in the BBB-rated sectors.


Federated Intermediate Corporate Bond Fund Institutional Shares returned 0.67% at net asset value for the third quarter of 2018. The fund’s benchmark, the BBICI Index, had a total return of 0.73%. The fund’s total return for the period also reflected actual cash flows, transaction costs and other expenses that were not reflected in the total return of the BBICI.

Performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than what is stated. Other share classes may have experienced different returns than the share class presented. 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 on the Portfolio Characteristics tab for information on quality ratings and the fund’s top 10 holdings.

Performance Contributors

  • Positive security selection in the consumer non-cyclical, energy, and banking sectors
  • Specific credits that contributed to performance in the quarter include: Teva, Citigroup, Nabors, Abbott Labs, and Oracle
  • Sector allocation was a positive contributor in the quarter led by underweights in the highest-quality sectors such as sovereigns and local authority and overweights in communications and energy, which outperformed the benchmark
  • Duration and yield curve were neutral contributors

Performance Detractors

  • Weak security selection in capital goods, REITs and finance companies
  • Specific credits that detracted from performance in the quarter include: Textron, Fidelity Investors, General Electric and Citizens Financial

How We Are Positioned

U.S. macroeconomic fundamentals continue to point to solid economic growth. Rising employment and strong consumer confidence undergird the U.S. economy. Although gradually rising, inflation appears contained thereby allowing the Fed to continue its steady pace of rate hikes into next year. In the corporate sector, profits are increasing year-over-year at a double digit pace, but are expected to slow into next year on tougher comparisons and a fade of the 2018 tax cut benefits. Corporate bond fundamentals are constructive.

On the security selection side, the fund remained overweight the BBB-portion of the investment-grade corporate bond market. The fund also maintained its positioning in financials as they remain attractive from a fundamental perspective. Financials should benefit from higher interest rates, have stable-to-improving fundamentals and are somewhat constrained in their capital returns to shareholders and ability to increase leverage, unlike many industrial-type credits. The fund is also overweight corporates and underweight the non-corporate sectors relative to its benchmark. In keeping with Federated’s alpha pod recommendations, the fund is short its benchmark duration.