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.
Highlights
- During the third quarter, we have seen U.S. Treasuries under pressure with the 10-year closing higher than 150 bps for the first time since June. Though not as volatile, 10-year AAA-rated municipals have increased by roughly 29 bps since July to about 113 bps.
- Municipals have become more attractive relative to U.S. Treasuries during Q3 as 10-year AAA municipal/U.S. Treasury ratios (“ratios”) increased slightly during the quarter, rising to nearly 77% from a range of 60-70% seen in Q2.
- High yield municipal credit spreads have continued to grind lower to about 170 bps.
- With respect to recent portfolio changes, the general theme was a shift from limited term into intermediate duration municipals. This was largely driven by changes in AAA municipals and U.S. Treasury curve dynamics. During Q3, the shorter end of the curve did not move significantly, while intermediate and longer term rates increased by roughly 15-20 bps. For the Conservative portfolio, we rotated some exposure from limited term into intermediate duration municipals. The Moderate portfolio similarly sourced from limited term and increased allocation to intermediate duration municipals, with a small addition to All-American, which also has higher exposure to the intermediate tenors of the curve. The High Income portfolio shifted exposure from limited term and All-American in favor of intermediate duration municipals in order to manage overall duration risk contribution. The duration profiles did not significantly change during the quarter.
