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.
- U.S. Treasury rates began to rise during the fourth quarter of 2020 and we believe they will continue their slow, upward trend in 2021.
- AAA municipal/U.S. Treasury yield ratios (“ratios”) have compressed significantly since March 2020 and we’ve seen record-setting municipal bond supply, particularly in the taxable space. While an uptick in issuance supply could result in further ratio tightening, we believe it is more likely that ratios will remain around the same. Ratios across maturities ended the year below their historical averages.
- High yield municipal credit spreads continue to contract and we believe that high yield will outperform as the U.S. economy reopens throughout 2021. We anticipate an additional 50 bps of spread compression, and possibly more if there is an acceleration in the reopening.
- With respect to recent portfolio changes, we maintained duration and lowered credit quality since we believe there is currently more value in high yield municipals compared to investment grade. The Conservative portfolio shifted slightly to reduce credit quality. The Moderate portfolio shifted to maintain its duration and access more short duration high yield exposure. The High Income portfolio reallocated out of funds holding primarily investment grade bonds to both the high yield funds.