Municipal Fixed Income - Philadelphia Area Municipal Analyst ...
[Pages:13]Municipal Fixed Income
WEEKLY MARKET REVIEW | December 18 2015
Robert Collins Head of Municipal Fixed Income RFCollins@ 302.651.8953
MUNICIPAL RESEARCH Stephen Winterstein
Managing Director & Chief Strategist SWinterstein@ 302.651.1910
Gerard Durr
Senior Credit Analyst GDurr@
Ted Molin
Senior Credit Analyst KMolin@
Karleen Strayer
Senior Credit Analyst KStrayer@
Robert Tice
Credit Analyst RTice@
PORTFOLIO MGMT & TRADING Rebecca Rogers
Director of Trading & Portfolio Management RRogers@
John Malloy
Senior Portfolio Manager JMalloy@
Maureen Lawrence
Senior Trader MLawrence@
Stephen Winterstein
Managing Director of Research & Chief Municipal Strategist
High-grade tax-exempt interest rates climbed last week, as the S&P AAA Municipal Yield Curve rose by 4 basis points (bps) at the 1-year point, while the 2- and 3-year maturities were both higher by 2 and 4bps, respectively (Figs. 1 & 2). The 5- and 7-year spots also shifted up by 4bps each, and the 10-year point was higher by 2bps. The 30-year spot increased by 1bp. The slope of the yield curve flattened by 3bps, front to back (Fig. 3).
Because of the rise in interest rates, performance results were mostly negative last week. The S&P Municipal Bond Index produced -0.029% (Fig. 11). Likewise, the Intermediate, Short Intermediate, and Short indices finished with total returns of -0.026%, -0.058%, and -0.045%, respectively.
Despite recent turmoil in the corporate high yield market, the tax-exempt municipal high yield market endured only marginally negative returns last week. The S&P Municipal Bond High Yield Index closed the last five trading days manufacturing -0.420%, bringing that benchmark's year-to-date return to +2.232%. The S&P Municipal Bond Puerto Rico index closed the week with performance of -0.683%.
The upcoming week has almost no new issuance, with only $35 million in municipal deals (Fig. 19), which is typical as we approach the close of the year. The following week should have a sparse new-issue calendar, as well. Looking at demand, the Investment Company Institute reported a positive $825 million of net flows into tax-exempt municipal bond funds for the week ending Wednesday, December 9 (Figure 20).
NOTICE: Due to the Christmas and New Year holidays, we will not publish the MFI Weekly for the next two weeks. We will resume publication on January 11, recapping the week ending January 8. We wish everyone a happy holiday season.
Please direct comments or questions to:
Leslie Varrelman
Fixed Income Product Specialist LVarrelman@ 215.485.6601
Investing involves risks and you may incur a profit or a loss. Past performance is no guarantee of future results.
?2015 Wilmington Trust Corporation and its affiliates. All rights reserved.
Page 1 of 13
Municipal Fixed Income WEEKLY MARKET REVIEW
Figure 1 S&P AAA Municipal Yield Curve - Recent Trends
Maturity
1 2 3 5 7 10 15 30
1yr-30yr Slope
2yr-10yr Slope
Most Recent
12/18/15 0.50 0.79 1.01 1.27 1.58 1.95 2.30 2.81
2.31
1.16
Last WeekEnd
12/11/15
0.46 0.77 0.97 1.23 1.54 1.93 2.30 2.80
2.34
1.16
Last MonthEnd
11/30/15
0.37 0.72 0.93 1.26 1.62 2.02 2.45 2.95
Last Year-End
12/31/14
0.17 0.50 0.81 1.31 1.71 2.05 2.36 2.88
2.58
2.71
1.30
1.55
Change for the Period
Week
0.04 0.02 0.04 0.04 0.04 0.02 0.00 0.01
MTD 0.13 0.07 0.08 0.01 -0.04 -0.07 -0.15 -0.14
YTD 0.33 0.29 0.20 -0.04 -0.13 -0.10 -0.06 -0.07
-0.03 0.00
-0.27 -0.14
-0.40 -0.39
Figure 2 S&P AAA Municipal Yield Curve : Year-Over-Year Comparison
3.500
3.000
2.500
Yield
2.000
1.500
1.000
0.500
0.000 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
12/18/15
Maturity
12/11/15
12/18/14
Source: WTIA Municipal Fixed Income, Standard & Poor's Securities Evaluations, Inc., Investortools, Inc..
?2015 Wilmington Trust Corporation and its affiliates. All rights reserved.
page 2 of 13
Municipal Fixed Income WEEKLY MARKET REVIEW
Figure 3 Slope Analysis: S&P AAA Municipal 1yr - 30yr Slope (40-Day Bollinger Bands)
340 320 300 280 260 240 220 200
Spread (in bps)
1yr-30yr spread
40-Day Moving Average
+2 Std Dev
-2 Std Dev
Source: Wilmington Trust Investment Advisors, S&P Dow Jones Indices, LLC, Investortools, Inc. Please see the end notes for a description of Slope Analysis
Figure 4 Slope Analysis: S&P AAA Municipal 2yr - 10yr Slope (40-Day Bollinger Bands)
220 200 180 160 140 120 100
Spread (in bps
2yr-10yr Spread
40-Day Moving Average
+2 Std Dev
-2 Std Dev
Source: Wilmington Trust Investment Advisors, S&P Dow Jones Indices, LLC, Investortools, Inc. Please see the end notes for a description of Slope Analysis
?2015 Wilmington Trust Corporation and its affiliates. All rights reserved.
page 3 of 13
Municipal Fixed Income WEEKLY MARKET REVIEW
Figure 5 S&P 10-year BBB Municipal and 10-year AAA Municipal Historical Yields and Spread
4.00
140
Yie ld
3.50
120
3.00 100
2.50 80
2.00 60
1.50
40 1.00
0.50
20
0.00
0
Spr e ad
Spr e ad
S&P BBB - AAA Spread (right scale)
S&P AAA 10-year Yield
Source: Wilmington Trust Investment Advisors, S&P Dow Jones Indices, LLC, Investortools, Inc.
S&P BBB 10-Year Yield
Figure 6 S&P Municipal Bond High Yield vs. Invesment Grade Indices: Month-end Historical Yields and Spread
Yie ld
8.00%
500
7.00%
450
400 6.00%
350
5.00%
300
4.00%
250
3.00%
200
150 2.00%
100
1.00%
50
0.00%
0
Spread
S&P Municipal Bond Investment Grade Yield Index
Source: Wilmington Trust Investment Advisors, S&P Dow Jones Indices, LLC, Investortools, Inc.
S&P Municipal Bond High Yield Index
?2015 Wilmington Trust Corporation and its affiliates. All rights reserved.
page 4 of 13
Municipal Fixed Income WEEKLY MARKET REVIEW
Figure 7 S&P 10-year US Treasury and 10-year AAA Municipal Historical Yields and Spread
3.00
40
2.50
30
2.00
20
1.50
10
1.00
0
0.50
-10
0.00
-20
Yie ld Spr e ad
S&P US Treasury - AAA Spread (right scale)
US Treasury 10-year Yield
Source: Wilmington Trust Investment Advisors, S&P Dow Jones Indices, LLC, Investortools, Inc.
S&P AAA 10-Year Yield
Figure 8 S&P AAA Municipal-to-US Treasury Ratios
Most Recent
Last Week-End
M atur ity
12/18/2015
12/11/2015
Last Month-End 11/30/2015
1
80.515%
71.651%
64.348%
2
82.983%
86.809%
77.088%
5
75.821%
78.394%
76.364%
10
88.596%
90.271%
91.279%
30
96.332%
97.121%
99.027%
So ur ce: W T IA M unicip al F ixed Inco me, St and ar d & Po o r 's Secur it ies Evaluat io ns, Inc., Invest o r t o o ls, Inc.
Last Year-End 12/31/2014 55.375% 74.405% 79.250% 94.470% 104.727%
?2015 Wilmington Trust Corporation and its affiliates. All rights reserved.
page 5 of 13
Municipal Fixed Income WEEKLY MARKET REVIEW
Figure 9 S&P AAA Municipal-to-US Treasury Ratio
130% 120% 110% 100%
90% 80% 70% 60% 50% 40%
Ratio
S&P 2-Year AAA Municipal-to-US Treasury Ratio S&P 30-Year AAA Municipal-to-US Treasury Ratio
S&P 10-Year AAA Municipal-to-US Treasury Ratio
Source: Wilmington Trust Investment Advisors, S&P Dow Jones Indices, LLC, Investortools, Inc.
Figure 10 Selected S&P Municipal Bond Index Averages
Coupon
Yieldto-
Worst
Averages as of December 18, 2015
PricedMaturity Priced-to to Date
Maturity (in yrs.)
Date
(in yrs.)
Effective Duration
S&P Municipal Bond S&P Municipal Bond Investment Grade S&P Municipal Bond Intermediate S&P Municipal Bond Short Intermediate S&P Municipal Bond Short
S&P Municipal Bond High Yield
S&P Municipal Bond Puerto Rico
4.522 4.680 4.789 4.783 4.746 3.448 3.210
2.290 1/16/2029 13.110 9/13/2021 5.740
1.998 7/16/2028 12.610 4/3/2021 5.290
2.051 5/20/2024 8.430 8/16/2021 5.660
1.466 2/12/2020 4.160 8/30/2019 3.700
1.074 2/1/2018
2.120 1/3/2018 2.040
6.180 10/7/2035 19.810 9/18/2027 11.750
9.526 4/27/2033 17.290 6/6/2032 16.470
6.322 6.191 5.470 3.385 1.938 8.088 8.661
Source: Wilmington Trust Investment Advisors, Investortools, Inc., S&P Dow Jones Indices LLC Index calculations by Investortools, Inc. Custom Index Manager
?2015 Wilmington Trust Corporation and its affiliates. All rights reserved.
page 6 of 13
Municipal Fixed Income WEEKLY MARKET REVIEW
Figure 11 Selected S&P Municipal Bond Index Total Returns
S&P Municipal Bond S&P Municipal Bond Investment Grade S&P Municipal Bond Intermediate S&P Municipal Bond Short Intermediate S&P Municipal Bond Short S&P Municipal Bond High Yield S&P Municipal Bond Puerto Rico
We e k
-0.029% 0.001% -0.026% -0.058% -0.045% -0.420% -0.683%
as of Decem ber 18, 2015
MTD
QTD
0.525% 0.575% 0.433% 0.091% -0.050% -0.129% -1.761%
1.384% 1.397% 1.170% 0.405% -0.045% 1.215% -1.080%
YTD
3.127% 3.204% 3.074% 1.849% 0.839% 2.232% -8.012%
So ur ce: W ilming t o n T r ust Invest ment A d viso r s, Invest o r t o o ls, Inc., S&P D o w Jo nes Ind ices LLC Ind ex calculat io ns b y Invest o rt o o ls, Inc. C ust o m Ind ex M anag er
Cale ndar 2014
9.260% 8.868% 6.985% 3.034% 1.020% 14.600% 10.319%
S&P Municipal Bond Index Total Return Performance Attribution for the Week Ending December 18, 2015
Figure 12 Return of Top 10 States by Market Value
Figure 13 Attribution by Lowest Rating
State Rating
CA
-0.012
NY
-0.006
TX
0.003
FL
0.024
IL
-0.162
PA
0.032
NJ
-0.027
MA
0.005
WA
0.010
OH
-0.212
-0.9 -0.7 -0.5 -0.3 -0.1 0.1
AAA / Aaa
-0.034
AA / Aa
-0.002
A / A
0.025
BBB / Baa
-0.028
Unrated
0.040
Below Inv. Grade -0.673 -0.9 -0.7 -0.5 -0.3 -0.1 0.1
Total Return (in %)
Total Return (in %)
Source: WTIA Municipal Fixed Income, Standard & Poor's Securities Evaluations, Inc., Investortools, Inc..
Lowest Rating ? Bond issues split across ratings by different agencies are categorized by the lowest letter grade.
Investing involves risks and you may incur a profit or a loss. Past performance is no guarantee of future results. ?2015 Wilmington Trust Corporation and its affiliates. All rights reserved.
page 7 of 13
-0.048 -0.089 -0.034 -0.032 -0.135
0.029 0.019 0.004
0.097 0.121 0.096 0.085 0.002 0.020 0.042 -0.002 0.024
0.249 -0.087
0.022 -0.068 -0.012 -0.011
Total Return (in %)
Municipal Fixed Income WEEKLY MARKET REVIEW
Figure 14 S&P Municipal Bond Index Total Re turn Pe rformance Attribution by Se ctor for the We ek Ending De cember 18, 2015
0.6 0.4 0.2 0.0 -0.2 -0.4 -0.6 -0.8 -1.0 -1.2 -1.4 -1.6
Se ctor
Source: WTIA Municipal Fixed Income, Standard & Poor's Securities Evaluations, Inc., Investortools, Inc..
-1.167
Figure 15
S&P Municipal Index Trailing 3-Year Annualized Returns (for the period ending November 30, 2015)
Annualized Return
10%
9%
8%
7%
6%
5% 4%
S&P Municipal Bond Intermediate Index
S&P Municipal Bond High Yield
S&P Municipal Bond Index
Index
3%
2%
S&P Municipal Bond Investment
1%
S&P Municipal Bond Short Intermediate Index
Grade Index
0%
-1% S&P Municipal Bond Short Index
-2%
-3%
-4%
-5%
-6%
-7%
-8%
-9%
-10%
0% 1% 2% 3% 4% 5% 6% 7% 8% 9%
S&P Municipal Bond Puerto Rico Index
10% 11% 12% 13% 14%
Annualized Standard Deviation of Returns
Source: Wilmington Trust Investment Advisors, S&P Dow Jones Indices, LLC, Investortools, Inc.
Investing involves risks and you may incur a profit or a loss. Past performance is no guarantee of future results.
?2015 Wilmington Trust Corporation and its affiliates. All rights reserved.
page 8 of 13
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