Investors appeared to rotate out of the long end of the Treasury bond market and reallocate into the short end of the Municipal market in May, a move that reduces the duration of bond investments.
Put another way, it means that investors were seeking protection from interest rate volatility.
The month of May brought the now usual turmoil and uncertainty in the credit markets and investor concerns focused on comments by the
Federal Reserve that it was monitoring the rise in inflation. This suggested that rate cuts were on hold and maybe the Fed would consider raising rates if inflation was deemed to be getting out of control. However a rate rise seems unlikely given the recent news on how weak the banking sector and the general economy are.
Nonetheless, inflation is a component used in the setting of the general level of market interest rates and its rise is now feeding into the mortgage market and other debt markets. This caused a selloff in the pricy Treasuries markets as investors reallocated funds to the less pricy municipal bond market. As mentioned above some investors reduced their sensitivity to interest rate changes by investing in short-duration municipals.
TSC ratings models upgraded the following municipal bond funds and the pick of the list are the top four which all carry a rating of B or above. These funds include the
DWS Short-Term Muni Bond Inst(MGSMX Quote - Cramer on MGSMX - Stock Picks), the
New Hampshire Municipal Fund(NHMUX Quote - Cramer on NHMUX - Stock Picks) and two funds from the
PIMCO focused on short-duration municipals, i.e. those municipals that have one to two years to maturity.
| Fund Name |
Ticker |
Current Rating |
Previous Rating |
Category |
| DWS Short-Term Muni Bond Inst |
MGSMX |
A- |
C+ |
Municipal - National |
| PIMCO Short Duration Muni Inc D |
PSDDX |
B |
C- |
Municipal - National |
| New Hampshire Municipal Fund |
NHMUX |
B+ |
C |
Municipal - Single State |
| PIMCO Short Duration Muni Inc Adm |
PSDMX |
B+ |
C |
Municipal - National |
| Eaton Vance National Muni I |
EIHMX |
C |
E |
Municipal - National |
| Eaton Vance AMT-Free Muni Bd I |
EVMBX |
C |
E+ |
Municipal - National |
| Eaton Vance NC Muni |
ECNCX |
C |
E+ |
Municipal - Single State |
| PIMCO Municipal Bond Admin |
PMNAX |
C |
D- |
Municipal - National |
| Eaton Vance KS Muni C |
ECKSX |
C- |
E |
Municipal - Single State |
| Eaton Vance MI Muni C |
ECMIX |
C- |
E |
Municipal - Single State |
| Eaton Vance AL Muni B |
EVALX |
C- |
E+ |
Municipal - Single State |
| Eaton Vance AZ Muni B |
EVAZX |
C- |
E+ |
Municipal - Single State |
| Eaton Vance AMT-Free Muni Bd B |
EBMBX |
D |
E- |
Municipal - National |
| Eaton Vance OR Muni C |
ECORX |
D |
E- |
Municipal - Single State |
| Eaton Vance PA Muni B |
EVPAX |
D+ |
E |
Municipal - Single State |
On the U.S. government side, the majority of the selling action took place on the long end of the yield curve. Accordingly, these funds were downgraded by our model.
| Fund Name |
Ticker |
Current Rating |
Previous Rating |
Category |
| American Century Tgt Mat.-2020 Adv |
ACTEX |
E |
C |
US Treasury |
| American Century Tgt Mat.-2025 Inv |
BTTRX |
E |
C |
US Treasury |
| Rydex Ser-Govt Lg Bd 1.2x Strgy Inv |
RYGBX |
E- |
C- |
US Government - Long |
| Wasatch Hoisington US Treasury |
WHOSX |
E- |
C- |
US Treasury |
| Federated USG Bond Fund |
FEDBX |
E+ |
C |
US Government - Long |
| PIMCO Long Term US Govt Admin |
PLGBX |
E |
C- |
US Government - Long |
| Vanguard Long-Term Bond Index Fd |
VBLTX |
E |
C- |
General Bd - Long |
| Dreyfus UST Long Term |
DRGBX |
D- |
C |
US Treasury |
| PIMCO Long Term US Govt Inst |
PGOVX |
E+ |
C- |
US Government - Long |
| Rydex Ser-Govt Lg Bd 1.2x Strgy Adv |
RYADX |
E- |
D |
US Government - Long |
Sam Patel
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