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During the month of April, the short duration municipal market was impacted by technical factors that affected rates across the one year yield curve. The most significant factor during the month was the April 15 tax deadline. As we moved through the month, we saw investors raise liquidity by selling daily and weekly variable rate demand notes (“VRDNs”). As balances of municipal VRDNs grew, dealers reset rates at levels to attract the taxable crossover buyer. By month end, the Securities Industry and Financial Markets Association (SIFMA) Index (index of tax-exempt weekly VRDNs) set at a multi-year high of 92 basis points. Northern Trust portfolio managers invested cash balances by purchasing daily and weekly municipal VRDNs throughout the month. Attractive tax-exempt yield, coupled with the ability to tender the municipal VRDN holdings at par, made these securities the investment of choice during April.
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