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Chart talk: Opportunities in municipal bonds and global fixed income
The what, why and how of the municipal and global fixed income markets
Key 2021 themes
Municipal bond market
- 2021 has been a transition year, and re-opening continues despite the Delta variant.
- The Federal Reserve expects to taper its Treasury purchases in late 2021 and conclude by mid-2022.
- Monetary stimulus and low rates continue to boost economic activity despite softer economic data.
- Inflation is a concern as the core PCE deflator is well above the Fed’s long-term target, but prices are expected to moderate in 2022.
- Treasury volatility has increased, along with policy uncertainty.
- Technical factors and potential tax changes could dampen municipal bond sensitivity to rising rates.
- Credit trends remain favorable, and we expect more ratings upgrades than downgrades.
- A strong economy and continued low default rates should allow high yield municipals to outperform.
- Seasonally robust new issue supply calendar could offer buying opportunity after a year-long struggle to find supply.
The evolving fixed income market environment Key 2021 themes
- U.S. economic growth accelerates
- Global growth remains strong in developed and emerging markets
- Central banks remain accommodative, but reducing extraordinary measures
- Fiscal policy supports growth, but set to fade
- As global economy heals and policy accommodation is reduced, expect rates to gradually rise
- Diversified overweight to spread sectors with preference for credit risk over duration risk
- Given full valuations, credit selection will be key
- Advocate deep research, favoring idiosyncratic stories with positive long-term growth prospects
- Low defaults and improving fundamentals benefit credit sectors
- Income to drive performance as valuations are unlikely to significantly improve
Finding opportunities in fixed income markets can be challenging. Unless you know where to look. Download our key municipal and global fixed income charts to learn more.
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All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such. For term definitions and index descriptions, please access the glossary on nuveen.com. Please note, it is not possible to invest directly in an index.
A word on risk
Investing involves risk; principal loss is possible. Debt or fixed income securities are subject to market risk, credit risk, interest rate risk, call risk, derivatives risk, dollar roll transaction risk and income risk. As interest rates rise, bond prices fall. Below investment grade or high yield debt securities are subject to liquidity risk and heightened credit risk. Preferred securities are subordinated to bonds and other debt instruments in a company’s capital structure and therefore are subject to greater credit risk. Foreign investments involve additional risks, including currency fluctuation, political and economic instability, lack of liquidity and differing legal and accounting standards. Asset-backed and mortgage-backed securities are subject to additional risks such as prepayment risk, liquidity risk, default risk and adverse economic developments. The value of convertible securities may decline in response to such factors as rising interest rates and fluctuations in the market price of the underlying securities. Senior loans are subject to loan settlement risk due to the lack of established settlement standards or remedies for failure to settle. These investments are subject to credit risk and potentially limited liquidity, as well as interest rate risk, currency risk, prepayment and extension risk, and inflation risk.
Investors should contact a tax professional regarding the appropriateness of tax-exempt investments in their portfolio. If sold prior to maturity, municipal securities are subject to gain/losses based on the level of interest rates, market conditions and the credit quality of the issuer. Income may be subject to the alternative minimum tax (AMT) and/or state and local taxes, based on the state of residence. Income from municipal bonds held by a portfolio could be declared taxable because of unfavorable changes in tax laws, adverse interpretations by the Internal Revenue Service or state tax authorities, or noncompliant conduct of a bond issuer. It is important to review your investment objectives, risk tolerance and liquidity needs before choosing an investment style or manager.
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