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 first quarter, the yield curve flattened significantly, with the front end rising by more than the belly and long end of the yield curve. The 2 year and 10 year yield rose by 160 bps and 83 bps. This led to the 10 year yield ending the quarter at 2.34% and less than 1 bps higher than the 2 year yield. The Federal Reserve increased the Federal Funds rate by 25 bps in March. Additionally, the Fed’s dot plot was revised to six additional rate hikes through 2022, up from three total during last quarter’s meeting. The Fed also indicated that they may raise it by more than 25 bps at a “meeting or meetings” if they feel that it is appropriate.
- AAA municipal/US Treasury ratios (“ratios”) rose across the curve. The 30 year ratio ended the quarter at 105%, a 25% increase since the start of the year. The 2 year ratio rose by 43%, after finishing last year at the lowest month-end level since the creation of the index in 2001.
- With respect to recent portfolio changes, we focused on managing duration risk in anticipation of several upcoming rate hikes, while taking advantage of the elevated muni ratios at the long end of the curve. In the moderate portfolio, we reduced the allocation to short duration high yield and high yield in favor of limited term and intermediate duration. Due to high yield spreads remaining tight, we reduced high yield based on our neutral stance on credit.
- In the high income portfolio, we reduced short duration and intermediate duration in favor of All-American. All-American can take advantage of the longer-end of the curve where ratios are over 100%.
