Federated Intermediate Municipal Trust (IS) FIMYX

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

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% when excluding sharply outperforming Puerto Rico bonds.

Performance

During the second 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 noninvestment-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 second 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 noninvestment-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.