Market Review and Outlook 3rd Quarter 2011
Signs of a renewed economic slowdown, continued weakness in the European banking system and increased political discord rattled the financial markets in the third quarter of 2011. These factors, along with a benign inflation environment, resulted in a dramatic decline in Treasury and investment grade municipal yields as investors sought refuge in safe haven investments.
The rally in the municipal bond market was supported by both a continued lower level of issuance during the first two months of the quarter and increased demand. In addition, in early August the Federal Reserve discussed weaker economic growth projections and pledged to keep borrowing costs unchanged until at least mid-2013. This announcement led to a further decline in interest rates as investors grew more skeptical of the pace of the U.S. economic recovery.