Unfunded pension liabilities continue to be a key credit concern for State and Local Governments across the municipal market. With Fiscal Year 2016 numbers now nearly fully reported, the median funding ratio for states declined to 72%, an 8% decline from 2015 to 2016. Investment returns averaged below 1% for the year, dramatically underperforming most plan’s projected returns of 7%-8%. Additionally, contributions in 48 out of 50 states were below the level required to maintain the prior year’s funding level.
Seix Quarterly Review
> The third quarter saw a continued lack of market volatility, still-low long-term interest rates, and minimal progress on President Trump’s pro-growth legislative agenda. In the investment grade-taxable market, spread sectors continued to benefit from the insatiable search for yield, producing positive excess returns across both the investment grade and sub-investment grade markets once again.
> In the tax-exempt municipal bond market, limited supply and healthy demand has driven strong performance this year. As issues regarding tax reform are debated, more and more investors may stay on the sidelines until some clarity emerges.
Seix Quarterly Review
> The high yield sector delivered another quarter of strong performance against a backdrop of improving fundamentals. At current valuation levels, there is limited potential for spread tightening.
> Leveraged loans, producing mostly coupon-clipping returns, were also supported by good fundamentals. Retail fund flows have been modestly negative but offset by strong CLO creation, and a high probability of an interest rate hike in December which should be supportive of the asset class.
Over the last month, we have seen three Category 4 hurricanes make landfall in the United States: Hurricane Harvey on the Texas Gulf coast, Hurricane Irma on the Florida Keys and Florida peninsula and Hurricane Maria on Puerto Rico and the US Virgin Islands. This is an unprecedented occurrence and is expected to have far-reaching ramifications to the affected areas, national economy and insurance sector. Thus far however, effects in the municipal market have been relatively minor, though we could see future impacts on a local and national scale.
So far this year we have written several reports on federal policies that could impact the tax exempt asset class and public finance issuers. The reports have discussed tax reform, domestic infrastructure, ACA reform, Medicaid spending, federal fiscal stimulus, and sanctuary cities. This month, we will focus on another federal policy that could impact the municipal asset class, HQLA designation.
Seix Quarterly Review
The last year has been interesting to say the least with the first half of 2017 a continuation of the “expect the unexpected” theme. From Brexit and the Trump election to the snap election in the UK earlier this year...�
George Goudelias and Sarita Jairath of Seix Investment Advisors are featured in WealthManagement’s 2017 Midyear Outlook.
Their article, "Why Invest in Leveraged Loans," features the investment team's perspective on the loan market and why they believe loans are attractive in the current environment.
Municipal green bond issuance has increased significantly over the past four years since Massachusetts became the first state to offer tax exempt bonds designated as ‘green’ in 2013. While only a small part of the municipal market at approximately $19bn...
Tax exempt bonds have had a nice rebound this year after a volatile 2016 and have returned a solid total return of 3.48% YTD. The performance has been primarily technically driven...
After focusing on tax reform in January’s report, this month we will explore Trump’s infrastructure plan and the possible implications for tax exempt bonds.
The Trump election is clearly a potential paradigm shift for the U.S. economy and asset markets, and until there is greater clarity surrounding budget and policy priorities in the coming weeks and months, market volatility will likely...
We began 2016 with the 10yr AAA MMD rate at 1.87%, on June 26th it bottomed out at 1.29%, and then peaked at 2.58% on December 1st. The election sparked the price plunge and retail investor selling of tax exempt mutual funds...
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