The municipal bond market started off 2014 with positive returns for long, intermediate and short benchmarks, due to the confluence of an overall US rates rally, uncertainty in overseas markets, January maturities needing to be reinvested and limited new issuance. We are taking advantage of this opportunity to lock in gains in accounts with exposure to the longer end of the municipal curve relative to their stated strategy and shorten our duration posture in light of our view of a moderate strengthening in the U.S. economy, continued tapering of the Federal Reserve QE program and a greater likelihood of higher interest rates in the second half of 2014. Locking in early gains also prepares client portfolios for what could be cheaper municipal bond prices later this year. We are looking for a mix of three ingredients for more attractive municipal valuations: (1) a credit event, (2) municipal fund outflows and/or (3) seasonal new issue supply during the summer months. Our recipe for more attractive municipal valuations is well on its way, with last week’s downgrade of Puerto Rico general obligation and Government Development Bank (GDB) bonds to junk status by S&P and Moody’s downgrade of the GOs and GDB two notches to Ba2. Note that Moody’s left the sales tax-backed bonds (CONFINA) at investment grade. This is a material credit event and could lead to mutual fund redemptions going into a heavier new issue calendar in the spring. We expect volatility to pick up in the first half of the year, and our clients’ portfolios are well positioned to take advantage of any market dislocation while having no exposure to any Puerto Rico debt.