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Fund Commentary

 
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Municipal Portfolio

as of 3/31/17

Fund Commentary

During the first quarter, fixed-income investors focused on the implications of the recent shift in the U.S. political landscape. Prospects for increased fiscal spending and a pro-growth agenda kept interest rates elevated compared with pre-elections levels. Additionally, fixed-income investors kept a watchful eye on the Federal Open Market Committee (FOMC), given the Committee’s intent to normalize policy rates. These factors spurred volatility in the fixed-income markets, prompting some investors to rethink their duration exposures. Following their March meeting, the FOMC followed through by raising their policy rate by 25 basis points (0.25%), the third increase since adopting their near-zero interest rate policy.

During the period, the Municipal Portfolio invested to take advantage of rising short-term rates. A possible increase in rates, coupled with the relative attractiveness of short-term municipal yields, prompted the managers to invest Portfolio assets primarily in daily and weekly variable rate demand notes, or VRDNs. Throughout the quarter, VRDN holdings offered liquidity as well as a top-tier credit profile. Their attractive tax-exempt yield compared to Treasury yields, and the ability to tender these issues at par, made municipal VRDNs a prudent choice.

Throughout the quarter, the Portfolio also held a significant quantity of overnight municipal securities to sustain liquidity levels in order to accommodate cash fluctuations. In an effort to minimize net asset value variance and maximize liquidity, the Portfolio’s weighted average maturity was maintained at approximately five days or less throughout the quarter. During the period, the Portfolio returned 0.11%.

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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 prospectus and summary prospectus and consider the investment objectives, risks, charges and expenses of Northern Institutional Funds before investing. Call 800-637-1380 to obtain a prospectus and summary prospectus, which contains this and other information about the funds.

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