Federated Michigan Intermediate Municipal Trust (A) MMIFX

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.

The Michigan Market

During the fourth quarter, spreads on Michigan general obligation bonds tightened by up to 4 basis points relative to the AAA national benchmark of similar maturity provided by MMD, which publishes the yields of high-grade tax-exempt bonds daily. The greatest tightening occurred from 11 to 15 years. According to the Bond Buyer, the issuance of new Michigan bonds during the fourth quarter was $2.2 billion, a decrease of 18% compared to the fourth quarter of 2016. For the entire year of 2017, issuance declined 49% from 2016.

Performance

During the fourth quarter of 2017, the fund’s total return at net asset value (NAV) for Class A shares was -0.06%. For the quarter, the fund’s best-performing sectors were Local General Obligations, Higher Education and Other Revenue Bonds. Lagging sectors were Public Power, Dedicated Tax and Pre-Refunded bonds (bonds for which the principal and interest payments are secured or guaranteed by cash or U.S. Treasury securities held in an escrow account). The fund’s modified duration increased during the quarter, but remained short compared to its index.

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.

Strategy

During the fourth quarter of 2017, the fund’s manager continued to believe income likely would be the primary long-term driver of total return. Transactions during the period generally focused on managing duration, sector rebalancing and cash flow.