An active approach to diversified tax-exempt income
Nuveen's forward-thinking approach to portfolio construction leverages 120 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.
- During the fourth quarter, the US 10 year treasury yield marginally rose by 2 bps and closed at 151 bps. The US 10 year yield briefly rose to over 170 bps in October, but quickly reversed course after the Federal Reserve stated they had no plans to raise rates anytime soon. However, the Federal Reserve’s guidance changed in December; the Fed dot plot was revised to three rate hikes for 2022, three for 2023 and two for 2024.
- AAA municipal/US Treasury ratios (“ratios”) declined across the curve. The US 2 year declined significantly, ending the quarter at 33%. This was the lowest month-end level since the creation of the index in 2001. The US 10 year ratio declined by 6% and ended the quarter at 70%.
- With respect to recent portfolio changes, we focused on maintaining low duration versus history due to the likelihood of an interest rate increase and how we expect the muni curve to flatten (the short end versus the intermediate to long end) by more than the treasury curve. Additionally, as the AAA muni/US treasury ratios appear rich, especially in the short end of the curve, we reduced the allocation to limited term in conservative and moderate due to our views on the short end of the curve.
- Within the below investment grade exposure, the duration of the Nuveen Short Duration High Yield Fund increased by almost 0.5 years. In order to maintain duration of the portfolio, we reduced high yield muni in favor of short duration high yield in the high income portfolio.