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 first quarter, the Federal Reserve raised the Fed Funds rate by 25 bps in both February and March. The impact on treasury bill and bond rates varied depending on maturities. Yields on 3 month bills rose 53 basis points, while 10 and 30 year bond yields dropped by 41 and 32 basis points respectively, further inverting the yield curve.
- AAA municipal/US Treasury ratios (“ratios”) were range bound across short and long-term maturities. The 2 year ratio declined by 1% and finished the quarter at 60%. The 10 and 30 year ratios declined by 3% and rose by 1% respectively, ending the quarter at 66% and 92%.
- With respect to recent portfolio changes, our updated capital market assumptions forecast lower short-term treasury yields and we retain a preference for higher quality. As a result, we reduced allocations to intermediate duration and increased allocations to limited term in the conservative and moderate models.
- Additionally, due to lower than average municipal to treasury ratios, we managed duration risk by reducing the allocation to high yield while increasing the allocation to short duration high yield in the moderate model. Changes in the high income model, where we reduced overall high yield exposure and added to intermediate duration, reflect our preference for higher quality.