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April 2013In April, the Barclay’s Municipal Bond Index rose 1.10 percent. Municipals rallied across the yield curve and the very long end of the curve was the best performer, rising by more than 1.50 percent. The economy continues to grow at a modest pace and inflation remains well contained. Europe remains mired in a recession and they are still working through many of the political and social issues. As expected the European Central Bank responded on May 2, by cutting interest rates by 25 basis points. China’s economic performance has been choppy of late but policymakers are still targeting GDP growth of 7.5 percent. Japan has instituted a very aggressive monetary policy that is comparable in size to the current U.S. Federal Reserve program. The Fed remains committed to maintaining a very stimulative monetary policy as growth remains too slow to risk falling back into recession. The Fed implemented a $40 billion a month quantitative easing program in September 2012, and followed that up with an additional $45 billion quantitative easing program in December 2012 to replace the expiring “operation twist.” The Fed is currently buying $85 billion a month in treasuries and mortgage-backed securities in an attempt to boost the economy and that program appears likely to continue despite rhetoric from various Fed officials. In specialty-state trading there were few outliers but Puerto Rico and New Jersey outperformed, while Michigan and Connecticut lagged. Puerto Rico was a significant laggard in 2012 but is among the best performers so far in 2013. As a group, revenue bonds modestly outperformed general obligation credits. Within the revenue universe, transportation and education-related issues outperformed while industrial development and housing bonds lagged. High yield or “junk” bonds underperformed, rising 0.91 percent. Within the investment grade universe, quality trends were mixed, as the difference between AAA- and BBB-rated bonds was not that significant. Past performance does not guarantee future results. The Barclays Capital Municipal Bond Index is an unmanaged index representative of the tax-exempt bond market. |
