Janney Fixed Income Strategy

January 28, 2013

A new year, a new class. The FOMC begins its 2013 policy year with a few new members in the
usual fashion. Lacker, Pianalto, Williams, and Lockhart have been replaced by Evans, Rosengren,
George, and Bullard, but the committee still leans on the dove-side meaning we are apt to see an
accommodative stance throughout 2013.
-Janney Montgomery Scott

In addition to improved optics related to taxation, tax free municipal bonds are benefitting from favorable supply demand dynamics, with moderate levels of weekly new issuance well offset by strong inflows to municipal mutual funds, including two $2 billion-plus weeks so far this month, compared to average weekly inflows just below $1 billion in 2012.

Economics: FOMC Preview

This week the FOMC is meeting in its first meeting of 2013 and, given the recent launch of QE3.5 and termination of Op. Twist, they believe this gathering will be quiet.  Still, Fed watchers will be looking for any information on the end of the asset purchase programs, which was first suggested in the December meeting minutes.

Credit: Large Banks 4Q Results

Large bank 4Q earnings season is largely complete and the results were fairly positive as 12 of the 15 banks in their group outperformed net income estimates.  Banks used headcount reductions to gain additional margin while maintaining adequate capital cushion. They expect many banks to announce shareholder remuneration plans after stress test results in March.

Municipals: January Downgrades

This month the ratings agencies were busy, downgrading Maine, Illinois, and bond insurer Assured Guaranty.  Despite low new issue market penetration, bond insurance has insulated bondholders from recent defaults, including Stockton, CA and Harrisburg, PA.  Bond insurance is not likely to gain its market share of the past but does have the opportunity to provide investors with an added layer of security.

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