In this month's Municipal Strategy Report we discuss how the Fed is undergoing historic change, not only in personnel, but also with respect to the commencement of balance sheet normalization, and a move back towards more hawkishness. A variety of market-worthy events have failed to boost the VIX. Market complacency has proven to be dangerous in the past. Will the changes at the Fed be the catalyst that finally moves the needle?
Additionally, the MSR features the following topics:
- The credit cycle has been on an upswing for the past four years, with downgrades consisting of a decreasing percentage of total ratings revisions from a peak of 84% in 2011Q3 to a low of 18.3% in 2017Q1. More recently, upgrades outpaced downgrades in seven of the nine quarters from 2015Q1-2017Q1. Is the municipal credit cycle starting to turn?
- Our analysis of 74 state plans with assets greater than $1 billion for 2016 using Structural Component Analysis reveals a clear linear mapping between the cash flow factors’ rankings and corresponding funded ratios in almost every case. The methodology can used to understand the evolution of funded ratio history for pensions and for dissecting when and what components lead to significant departures from trend performance.