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 rose rapidly during the first quarter of 2021, increasing 81 basis points during the period. We continue to expect Treasury rates to gradually rise.
- AAA municipal/U.S. Treasury yield ratios (“ratios”) continued to compress throughout the quarter after significant compression occurred during the latter part of 2020. Given ratios are well below their historical averages, we anticipate they will normalize closer to average in the future.
- High yield municipal credit spreads have contracted significantly over the last year and have fallen below their historical averages, nearly to their pre-coronavirus crisis levels. We believe credit spreads will continue to compress as Treasury rates rise and they may be reverting to lower structural levels than they were prior to the crisis.
- With respect to recent portfolio changes, we lowered duration across the portfolios given the relative attractiveness on the short-end of the municipal curve compared to longer-dated maturities. We also maintained our credit exposure across the portfolios given where high yield credit spreads currently stand. The Conservative portfolio shifted exposure from intermediate duration municipals to limited term. The Moderate portfolio sold out of long-dated investment grade municipals in favor of intermediate duration and limited term, and shifted some long-dated high yield exposure to short duration high yield. The High Income portfolio slightly reduced long-dated high yield municipal exposure and reallocated to short duration high yield and investment grade intermediate duration. This left the credit quality at the portfolio level virtually unchanged but presented an opportunity to potentially achieve more attractive risk-adjusted returns.