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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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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.
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