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  Municipal Update 2nd Quarter 2017
Posted Under: Municipal
2nd Quarter 2017 Municipal Market Performance and Highlights
  • Municipals outperform in 2Q2017: Municipal market returns were broadly positive in the second quarter of 2017. The Bloomberg Barclays Municipal Bond Index returned 1.96% during the second quarter of 2017 compared to 1.58% in the first quarter of 2017, and outperformed the Bloomberg Barclays Treasury Bond Index by 77 basis points (bps).

  • Pace of Issuance Slows: In the first half of 2017, primary market issuance decreased by 13.3% year-over-year (yoy). The decline in primary market issuance was due to an approximately 26% decline in refunding activity, only partially offset by an increase in new capital issuance.

  • Retail Demand Regains Footing: The last two months of 2016 saw dramatic outflows from municipal mutual funds. In comparison, during the first half of 2017, municipal fund flows were positive during each month, ranging from a positive $854 million to $2.44 billion. Year-to-date, fund flows thru June 21st totaled a robust $11.88 billion.

  • Credit Remains Stable, Despite High-Profile Defaults: As a whole, municipal credit quality remained stable in the first half of 2017. Through June 30, 2017, using MMA data, first-time municipal defaulters totaled just 21 borrowers with a total par value of $18.6 billion, compared to the first half of 2016 when 28 borrowers defaulted on $5.98 billion. According to a Bank of America Merrill Lynch analysis, thru July 5, 2017, Puerto Rico related borrowers accounted for approximately 95.5% of total defaults.

  • Tighter Credit Spreads: During the first half of 2017, credit spreads tightened for both "A" and "BBB" rated municipal securities (see Figure 3 below). We believe "BBB" credit spreads for new bond issues are tighter than the five year historical average.

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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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