Federated Michigan Intermediate Municipal Trust (A) MMIFX

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

Highlights

  • The fund’s total return for the quarter was -1.15% for A Shares at NAV
  • The fund’s yield-curve positioning was the main driver of performance
  • The fund’s duration remains short to its index; credit allocation is concentrated in higher-rated securities

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 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.

During the quarter, spreads on Michigan general obligation bonds were unchanged relative to the AAA national benchmark of similar maturity provided by MMD, which publishes the yields of high-grade tax-exempt bonds daily. According to the Bond Buyer, issuance of new Michigan bonds in the quarter was $1.1 billion, a decline of 38% from a year earlier.

Performance

The fund’s total return for A shares (NAV) during the first quarter was -1.15%.

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. To view performance current to the most recent month-end and for after tax returns, click on the Performance tab. Performance does not reflect the maximum 3% sales charge for Class A Shares. If included, it would reduce the performance quoted.

Click the Performance tab for standard fund performance.

Performance Contributors

  • The fund benefitted from its positioning along the yield curve, with an overweight position in shorter-maturity bonds
  • The fund’s best-performing sectors were Industrial Development, Dedicated Tax and Other Revenue bonds

Performance Detractors

  • The fund’s high credit quality worked against it during the quarter as non-investment-grade and non-rated bonds outperformed
  • Lagging sectors included State and Local General Obligation and Airport Revenue bonds

How We Are Positioned

The fund’s duration remains short to its index. Credit allocation is concentrated in higher-rated securities.