Federated Intermediate Municipal Trust (SS) FIMTX

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

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 the 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.

Performance

During the first quarter of 2018, a positive contribution was made to performance by the fund’s holdings in Industrial Development debt and Hospital bonds, which performed well during the quarter. However, the fund’s exposure to special tax financings and Public Power debt had a negative impact on performance.

Credit spreads narrowed selectively as risk-taking by investors continued, with the narrowing of credit spreads to a greater extent in A- and BBB-rated (or comparable quality) debt. The fund’s overweight, relative to the S&P Municipal Bond Intermediate Index, in A- and BBB-rated debt during the quarter positively impacted performance as the yield on A- and BBB-rated debt decreased to a greater extent than for other investment-grade securities. The fund’s overweight in non-investment-grade debt was a positive contributor to performance as this sector continued to provide incremental yield and positive price performance.

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.

Strategy

During the first quarter of 2018, the fund’s manager used the following primary investment strategies. The fund manager increased holdings of lower-rated, tax-exempt, investment-grade and non-investment-grade municipal debt relative to the S&P Investment Grade Municipal Bond Index, the fund’s broad-based securities market index, to seek to take advantage of the additional yield provided and the expectation of tighter or, at worse, stable credit spreads. The purchase of Essential Service Revenue bonds, such as Higher Education, Public Power and Senior Care bonds, was emphasized due to their potential to undergo credit improvement in the coming months and their attractive valuations compared to alternative market sectors. Portfolio duration was targeted at 95% of the duration of the index.