Municipal Fixed Income Commentary 2Q2011

Despite lingering budgetary concerns for many municipal credits and net outflows of money from the municipal market, the 50% drop in year over year municipal new issue supply and declining Treasury yields created an overall supportive environment for municipals. Year to date municipal new issuance of approximately $115 billion represented the lowest issuance recorded since 2000 which came in at $96.5 billion. As a result, the Barclays Municipal Index ended the 2nd quarter with a generous total return of 3.89%. Longer-dated municipal bonds outperformed due to supply constraints, lower inflation expectations and a preference for municipal investors to reach for yield.