Federated Michigan Intermediate Municipal Trust (A) MMIFX

Share Classes Product Type Asset Class Category
Mutual Fund Fixed Income Muni State Specific
As of 06-30-2018

Highlights

  • The fund’s total return for the quarter was 0.50% for A Shares at net asset value (NAV)
  • The fund’s yield-curve positioning contributed to performance during the second quarter, while sector and credit allocation had negative impacts
  • The fund’s duration remains short to its index; credit allocation is concentrated in higher-rated securities

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% excluding 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 $1.8 billion, a decline of 2% from a year earlier. Year-to-date issuance is down 20% from the first half of 2017.

Performance

The fund’s total return for A shares (NAV) during the first quarter was 0.50%.

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
  • The fund’s best-performing sectors were Higher Education, Airport, and Water & Sewer bonds

Performance Detractors

  • Lagging sectors included Industrial Development, Pre-Refunded, and State General Obligation bonds
  • The fund’s overweight in AA-rated bonds was a drag on performance as lower-rated bonds outperformed

How We Are Positioned

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