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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 02, 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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  Senior Loan & High Yield Review - 1st Quarter 2017
Posted Under: Senior Loan • High Yield

Macro-Economic Overview

Equity markets led the way in the first quarter of 2017, with the S&P 500 Index up 6.07%. Other risk-asset markets such as emerging markets debt and corporate high-yield debt also performed well, up 3.87% and 2.71%, respectively. The positive backdrop for these asset classes continues to be that the U.S. economy is on solid ground, in our opinion, with unemployment claims near the 2000 decade low, increasing CPI, and Real GDP expansion. The proposed economic agenda under the Trump administration which includes lowering individual and corporate income tax rates, increased infrastructure spending, and reduced regulatory burden on businesses has the potential to accelerate the U.S. growth rate. While implementing the agenda in its entirety and the timing remain uncertain, it has nonetheless buoyed risk markets up to this point (Exhibit 1 & 2: Returns).

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Posted on Tuesday, April 11, 2017 @ 9:31 AM • Post Link Share: 
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  Diversifying Alpha with Strategy ETFs
Posted Under: ETFs
Summary of 2016 ETF Flows and Trends¹
  • Total US-listed ETF Assets stood at $2.6 trillion at the end of 2016, a 19.6% increase from the end of 2015. Total estimated net flows for the year were a record $287 billion, outpacing flows in 2015 by $42 billion.
  • Total Assets increased by more than 25% in four ETF categories, including Commodities ETFs (+31.7%), Municipal Bond ETFs (+29.7%), US Equity ETFs (+26.5%), and Taxable Bond ETFs (+25.9%). 
  • US Equity ETFs and Taxable Bond ETFs dominated estimated net asset flows in 2016, bringing in $140 billion and $86 billion, respectively.  No ETF category had estimated net outflows in 2016.

¹Based on Morningstar data, as of 12/31/16.  Includes all exchange-traded funds, exchange-traded notes, and other exchange-traded products.

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Posted on Thursday, February 09, 2017 @ 1:52 PM • Post Link Share: 
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  Municipal Update 4th Quarter 2016
Posted Under: Municipal

4th Quarter 2016 Municipal Market Performance and Highlights

  • Municipal market returns were decidedly negative for the fourth quarter as U.S. Treasury rates spiked upward immediately following the U.S. presidential election and municipal rates followed. For the three months ended December 31, 2016, the Barclays Municipal Bond Index generated a total return of -3.62% compared to the Barclays U.S. Treasury Index return of -3.84%. In spite of the dramatic increase in rates during the quarter, municipal performance was still positive for 2016. For the twelve months ended December 31, 2016, the Barclays Municipal Bond Index returned 0.25% and the Barclays Non- Investment Grade Municipal Bond Index returned 2.99%.

  • New issue supply decreased during the quarter as refunding activity fell due to the climb in rates. For the three months ended December 31, 2016, new issue volume totaled $105 billion versus $115 billion for the previous quarter to bring the twelve-month total to $446 billion – a 10.7% increase over the total new issue supply of $403 billion for 2015. The new issue volume of $446 billion set a record, breaking the old mark of $433 billion set in 2010.

  • Retail demand turned negative in the 4th quarter. After 10 straight months of inflows (totaling $51 billion), municipal mutual funds and ETFs experienced large outflows starting in November, that continued through year-end. For the quarter ending December 31, 2016, fund outflows totaled $26 billion bringing 2016 fund net inflows to $25.5 billion.

  • Credit fundamentals remained stable, with one caveat. Defaults in 2016, both in number and par value increased, but the increase was primarily attributable to Puerto Rico and its corporate affiliates.

  • By the end of the fourth quarter, higher rates and wider credit spreads resulted in a more attractive investment environment, in our opinion, with 10-year AAA and BBB yields at 2.31% and 3.23% (Municipal Market Data) respectively, which equates to taxable-equivalent yields of 4.08% and 5.70%.

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Posted on Thursday, February 02, 2017 @ 1:52 PM • Post Link Share: 
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  U.S. Investment Grade Credit Investor Update - 4th Quarter 2016
Posted Under: Investment Grade Credit

Market Review

Investment grade credit spreads performed well in the fourth quarter, with the option-adjusted spread on the Bloomberg Barclays Corporate Bond Index tightening 15 basis points (bps) to 123 over the three-month period ending December 31, 2016. This compares to 165 bps at the beginning of the year. In what has become a familiar theme, lower quality outperformed. In fact, the lowest quality portion of investment grade has been the outperformer in every one of the past six months. In stark contrast to credit, however, U.S. Treasuries sold off sharply during the quarter, before recovering slightly into year-end.

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Posted on Tuesday, January 31, 2017 @ 12:58 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
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
Municipal Update 3rd Quarter 2016
Third Quarter 2016 CEF Review
Emerging Market Local Currency Review - 3rd Quarter 2016
Senior Loan & High Yield Quarterly Review - 3rd Quarter 2016
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