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The majority of third-quarter economic data releases painted a picture of improving growth. The general improvement in economic activity gave the Federal Reserve (Fed) the confidence to continue on its path of removing monetary accommodation. At its September meeting, the Fed formally announced its intention to begin reducing the size of its $4.5 trillion balance sheet. The economy remained on solid footing as the quarter drew to a close, with U.S. gross domestic product (GDP) growth reaching 3.1%.
Demand was strong within the short-duration municipal market. Despite the series of hurricanes, the broader tax-exempt market — and the bonds most affected by the weather events — traded relatively well. Northern Trust’s Fixed Income Municipal Credit Team carefully monitored storm developments and the potential effect on portfolio holdings. The conclusion was that while the human cost of the storms was significant, there was minimal long-term financial impact on issuers represented in the Portfolio.
The Portfolio returned 0.16% for the quarter. The third quarter is the time when many municipalities offer fixed-rate one-year notes in anticipation of future tax and revenue receipts. Strong demand for these notes flattened the one-year tax-exempt yield curve for much of the period. By quarter end, weekly variable rate demand notes, or VRDNS, were set at 0.94%, while one-year notes were trading at approximately the same level. We invested cash balances by purchasing primarily daily and weekly municipal VRDNs. In an effort to lock in yield, we selectively purchased top-tier tax-exempt commercial paper and fixed-rate notes.
An investment in the Money Market Funds is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other governmental agency. Although the Funds seek to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Funds.
Please carefully read the summary prospectus or prospectus and consider the investment objectives, risks, charges and expenses of Northern Institutional Funds before investing. Call 800-637-1380 to obtain a summary prospectus or prospectus, which contains this and other information about the Funds.
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