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  U.S. Investment Grade Credit Investor Update - 2nd Quarter 2017
Posted Under: Investment Grade Credit

Market Review
Investment grade credit spreads recovered from their March widening, improving each month during the second quarter of 2017. The option adjusted spread on the Bloomberg Barclays Corporate Bond Index tightened 9 basis points (bps) to 109 over the three-month period ending June 30, 2017. This compares to 123 bps at the beginning of the year, and 156 bps at the end of the second quarter of 2016. The trend of lower credit quality issues outperforming higher credit quality issues resumed after pausing in March, with crossover credits (which still have a non-investment grade rating from one of the three major rating agencies) performing the best, while Aa+ credits performed the worst during each of the past three months. In the U.S. Treasury market, the yield on the benchmark 10-year Treasury declined from 2.388% to 2.305%, after having traded as high as 2.415% and as low as 2.126% during the quarter. Two sharp intra-month declines in yields were not able to hold against the backdrop of a market friendly outcome in the French Presidential election, solid first quarter earnings, and increasingly hawkish global central bank posturing with regards to removing quantitative easing (QE).

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Posted on Monday, July 24, 2017 @ 11:35 PM • Post Link Share: 
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  Second Quarter 2017 CEF Review
Posted Under: CEFs

Second Quarter 2017 Overview

The second quarter of 2017 was another solid one for diversified closed-end fund (CEF) investors. The average fund was up 3.50% for the quarter and is now up 8.82% year-to-date (YTD). It was a broad based rally again this quarter with equity funds up on average 2.91%, taxable fixed-income funds up 4.10% and municipal funds up 3.60%. Equity CEFs are now up on average 11.42% YTD, taxable fixed-income funds are up on average 8.93% YTD and municipal funds are up 6.02% YTD (Source: Morningstar. All data is share price total return).

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Posted on Thursday, July 20, 2017 @ 4:34 PM • Post Link Share: 
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  Alternatives Update 2nd Quarter 2017
Posted Under: Alternatives

The capital markets continually offer up uncertainty and confusion. A "Chekov's gun" mindset to market analysis will likely result in terabytes of data mining, great mental anguish, but perhaps little else. Rarely do any markets follow the careful sequencing of a well-crafted spy novel or a tightly written screenplay. In fact, it might be said that the incoherent jumbled mess of a Michael Bay directed movie is logical and cohesive by comparison. As a tangent, the current administration and both political parties seem to be giving Michael Bay a serious run for his money. Fortunately for investors, the markets appear to be ignoring both domestic and global political dysfunction. Despite all the noise, a couple of clear themes emerged in the second quarter: For risk assets, any news was good news, and there has been a shift in messaging from the Federal Open Market Committee (FOMC).

Second quarter returns for traditional assets were strong across the board with global equity markets continuing to dominate (see Figure 1). Carrying on the theme that has been in place since the start of quantitative easing, equity or credit of most varieties proved to be rewarding. Despite the FOMC raising rates and signaling more to come, long dated treasuries rallied strongly, outpacing the S&P 500. Two of the more popular explanations for the flattening are: The bond market is telling the FOMC that they should not be raising rates at this juncture and the talk of several more rate moves and balance sheet unwinding is just that, talk.

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Posted on Thursday, July 20, 2017 @ 8:59 AM • Post Link Share: 
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  Senior Loan & High Yield Review - 2nd Quarter 2017
Posted Under: Senior Loan

Macro Overview
Equities posted a strong second quarter of 2017, with the S&P 500 Index up 3.09%. Equity market volatility remained subdued, despite weaker oil prices, while interest rates declined for much of the quarter. Crude oil fell from an intra-quarter high of $53.40 to $42.53 near the end of the quarter while the 10-year U.S. Treasury yield touched 2.414% in May and drifted to 2.126% by mid-June, eventually finishing the quarter at 2.304%. Declining yields were a boon to fixed-income, with investment grade corporate bonds up 2.42% and high-yield bonds up 2.14% for the quarter. Moreover, the yield-curve flattened significantly in the quarter, with the difference between 2-year U.S. Treasuries and 10-year U.S. Treasuries falling to a mere 79 basis points (bps) in mid-June from 113 bps on March 31, 2017. In our opinion, the primary catalyst for lower rates and a flattening yield curve was a building narrative around weaker inflation data in the U.S. and a view that the Trump Administration's pro-growth policies may be far more difficult to implement than previously anticipated.

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Posted on Tuesday, July 18, 2017 @ 3:00 PM • Post Link Share: 
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  Municipal Update 1st Quarter 2017
Posted Under: Municipal

1st Quarter 2017 Municipal Market Performance and Highlights

  • Municipals outperform in Q1: Municipal market returns were broadly positive in the first quarter of 2017 after recovering some of the sharp losses seen in the last quarter of 2016. The Barclays Municipal Bond Index returned 1.58% in the first quarter of 2017, outperforming the Barclays Treasury Bond Index by 90 basis points (bps).

  • Pace of Issuance Slows: In the first quarter of 2017, primary market issuance decreased by 10% year-over-year (yoy). During the first quarter, new capital issuance increased 12% yoy while refunding activity declined by 24% over the same time frame.

  • Retail Demand Regains Footing: The last two months of 2016 saw dramatic outflows from municipal mutual funds. The first quarter of 2017, in stark contrast to the turbulent end to 2016, was marked by persistent, yet volatile, inflows. Net inflows for the first quarter of 2017 totaled $4.5 billion.

  • Credit Remains Stable, Despite High-Profile Issues: As a whole, municipal credit quality remained stable in the first quarter of 2017. Through the first quarter of 2017, first-time municipal defaulters totaled just eight borrowers with a total par value of $190 million, compared to the first quarter of 2016 where 10 borrowers defaulted on $1.85 billion. Despite the broad credit stability, high-profile issuers like Illinois, New Jersey and Chicago continue to pose headline risk while Puerto Rico has defaulted on a record amount of municipal debt.

  • Rates: Treasury rates declined slightly during the first quarter. The 10-year Treasury rate declined from 2.45% to 2.40% as of March 31, 2017. The 30-year Treasury rate declined from 3.04% to 3.02%. Municipal rates movements were relatively benign as well, with the AAA 10 year MMD rate declining six basis points from 2.31% to 2.25% during the first quarter while the AAA 30-year MMD (Municipal Market Data) rate increased just one bp from 3.04% to 3.05% (see Figure 1).

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Posted on Friday, May 26, 2017 @ 1:11 PM • Post Link Share: 
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  The Value of Dividend Growth
Posted Under: ETFs
  • Summary of Q1 2017 ETF Flows and Trends¹
  • Estimated net inflows for US-listed exchange-traded funds (ETFs) totaled $134 billion in Q1 2017, setting a new record for the second straight quarter.
  • Equity ETFs received the lion's share of estimated net inflows during Q1 2017. While the overall strongest category for estimated net asset flows was US Equity ETFs, with $44.8 billion in estimated net inflows, International Equity ETFs and Sector Equity ETFs also had strong showings, with $33.5 billion and $18.0 billion of estimated net inflows, respectively.
  • Taxable Bond ETFs received the second highest level of estimated net inflows in Q1 2017, with $33.9 billion. This marked a $21 billion increase from Q4 2016, which had been the weakest quarter for Taxable Bond ETFs in 2016. Estimated net inflows for Municipal Bond ETFs slowed to $0.7 billion in Q1 2017, compared to $1.3 billion in Q4 2016.
  • Both Commodities ETFs and Alternatives ETFs received estimated net inflows in Q1 2017, totaling $1.1 billion and $1.6 billion, respectively, after both faced estimated net outflows in Q4 2016.

¹Based on Morningstar data, as of 3/31/17.  Includes all US-listed exchange-traded funds, exchange-traded notes and other exchange-traded products. All net inflow and outflow numbers are estimates based on information provided by Morningstar.

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Posted on Thursday, May 11, 2017 @ 1:43 PM • Post Link Share: 
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  Emerging Market Local Currency Review - 1st Quarter 2017
Posted Under: Emerging Markets

The start of 2017 saw positive momentum spread across most emerging market assets, a contrast to the negative sentiment we witnessed immediately following the U.S. presidential election in the last quarter of 2016. Local currency-denominated assets enjoyed a positive quarter as most emerging market currencies strengthened versus the U.S. dollar. Given the exceptionally cheap valuations for these emerging market currencies, as we explore further below, it is not surprising that they are attracting investor attention.

The most widely followed emerging market local currency benchmark, the JP Morgan GBI-EM Global Diversified Index, returned 6.50% for the 1st quarter of 2017. The yield on the JP Morgan GBI-EM Global Diversified Index fell 24 basis points to 6.55% over the period, while the yield on 5-yr maturity U.S. Treasury bonds was relatively flat, falling 1 basis point to 1.92%.

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Posted on Tuesday, May 2, 2017 @ 3:58 PM • Post Link Share: 
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  First Quarter 2017 CEF Review
Posted Under: CEFs

First Quarter 2017 Overview

Following a calendar year when the average closed-end fund (CEF) was up 8.59%, many categories of the CEF marketplace continued their positive momentum in 2017. Indeed, the average CEF was up a solid 5.17% during the first quarter of 2017. Positive gains were broad based during the first three months of the year as equity CEFs were up on average 8.35%, taxable fixed-income CEFs up 4.64% and municipal CEFs up 2.34%. I believe rising global equity prices, solid fundamentals for credit sensitive asset classes (i.e. defaults below historical averages), fairly steady long-term interest rates, demand for income-oriented asset classes and discount narrowing all helped contribute to the broad-based positive total returns experienced by many categories in the first quarter. (Source: Morningstar. All data is share price total return.)

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Posted on Friday, April 28, 2017 @ 9:56 AM • Post Link Share: 
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  Alternatives Update 1st Quarter 2017
Posted Under: Alternatives

"It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to Heaven, we were all going direct the other way – in short, the period was so far like the present period, that some of its noisiest authorities insisted on its being received, for good or for evil, in the superlative degree of comparison only."

The above quote from Dickens' masterpiece, "A Tale of Two Cities", provides an eloquent summary for many aspects of today's society: the domestic economy, the global economy, the ever growing partisanship in Washington D.C., the accelerating prevarication by extremes in both political parties, the future of Great Britain, the integrity of the Euro bloc, the White House's relationship with the media, governmental regulation, healthcare, and even the relative performance within the capital markets. The closing words of "superlative degree of comparison only" seem especially apropos given that the capital markets have provided some superlative numbers to discuss.

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Posted on Tuesday, April 25, 2017 @ 12:22 PM • Post Link Share: 
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  U.S. Investment Grade Credit Investor Update - 1st Quarter 2017
Posted Under: Investment Grade Credit

Market Review


Investment grade credit spreads improved during the first quarter of 2017, with the option-adjusted spread on the Bloomberg Barclays Corporate Bond Index tightening 5 basis points (bps) to 118 over the three month period ending March 31, 2017. This compares to 163 bps at the end of 1Q2016. Significantly, however, credit spreads widened in March after tightening during both January and February. Moreover, the eight month credit spread compression trend came to an end during March as crossover credits (which still have a non-investment grade rating from one of the three major rating agencies) underperformed higher-rated credits for the first time since June 2016. U.S. Treasury performance was likewise muted, with the yield on the benchmark 10-year Treasury falling from 2.445% to 2.388% during the quarter.

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Posted on Wednesday, April 19, 2017 @ 4:28 PM • Post Link Share: 
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These posts were prepared by First Trust Advisors L. P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.
 PREVIOUS POSTS
Senior Loan & High Yield Review - 1st Quarter 2017
Diversifying Alpha with Strategy ETFs
Municipal Update 4th Quarter 2016
U.S. Investment Grade Credit Investor Update - 4th Quarter 2016
Emerging Market Local Currency Review - 4th Quarter 2016
Fourth Quarter 2016 CEF Review
Alternatives Update 4th Quarter 2016
Senior Loan & High Yield Review – 4th Quarter 2016
U.S. Investment Grade Credit Investor Update - 3rd Quarter 2016
Money Market Reform and the Opportunity for Enhanced Cash ETFs
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The information presented is not intended to constitute an investment recommendation for, or advice to, any specific person. By providing this information, First Trust is not undertaking to give advice in any fiduciary capacity within the meaning of ERISA and the Internal Revenue Code. First Trust has no knowledge of and has not been provided any information regarding any investor. Financial advisors must determine whether particular investments are appropriate for their clients. First Trust believes the financial advisor is a fiduciary, is capable of evaluating investment risks independently and is responsible for exercising independent judgment with respect to its retirement plan clients.
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