An active approach to diversified tax-exempt income
Nuveen's forward-thinking approach to portfolio construction leverages 125 years as a leader in the municipal bond industry to help achieve outcomes that align with investors’ tax-exempt income objectives while seeking to minimize downside risk.
Highlights
- In November and December, the Federal Reserve reduced the federal funds rate by 25 basis points at each meeting. They also updated their dot plot projections, forecasting for 50 basis points in cuts in 2025 and 2026. Treasury yield rose sharply across the curve, with the 2-year and 10-year yields rising by 60 and 79 basis points, respectively.
- AAA municipal/US Treasury ratios declined over the quarter. The 2-year ratio remained flat, while the 10- and 30-year ratios decreased by 1% and 5%. By the end of the quarter, the 2-year, 10-year, and 30-year ratios stood at 66%, 68% and 81%.
- The changes made this quarter reflect the team’s outlook on steepening yield curve, higher Treasury rates, and robust issuance. As a result, duration was reduced across all models. Despite historically tight spreads, we maintain a positive view on high-yield municipal bonds. In the conservative model, intermediate was reduced in favor of limited-term and short-duration high yield. In the moderate and high income models, high yield was reduced in favor of short duration high yield, reflecting our view on duration. Additionally, within the moderate model, All-American and limited term was reduced for intermediate.
