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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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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.
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
Municipal Update 3rd Quarter 2016
Third Quarter 2016 CEF Review
Emerging Market Local Currency Review - 3rd Quarter 2016
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