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.

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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.

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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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