An active approach to diversified tax-exempt income
Nuveen's forward-thinking approach to portfolio construction leverages 125 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
- In September, the Fed raised the federal funds by 25 basis points and forecasted one additional hike by year-end.
- In Q3 2026, municipal-to-Treasury ratios rose across the curve. The 5-, 10- and 30-year ratios rose by 13%, 13% and 10%. Ratios ended the quarter at 73%, 78% and 93%, respectively. High yield municipal spreads tightened by 38 basis points during the quarter. High yield credit fundamentals remain attractive.*
- Year-to-date, municipal bonds have seen $69 billion in net flows. This is the third highest year-to-date flow total for this point in the year since Lipper began reporting flows in 1992, trailing only 2019 and 2021. $60 billion has gone into investment grade while $9 billion has been allocated to high yield. The municipal market has now experienced inflows in 22 of the last 23 weeks.*
- We made no changes to the Conservative model. While its shorter-duration positioning was not immune to the sharp rise in interest rates, it absorbed significantly less price impact than longer-duration exposure would have. Shorter-duration exposure now receives a higher yield without having to take any additional risk. In the Moderate model, we reduced Nuveen Limited Term Municipal Bond and Nuveen Intermediate Duration Municipal Bond in favor of Nuveen Short Duration High Yield Municipal Bond. This was a modest, defensive carry trade — accepting slightly more credit risk in exchange for extra yield — picking up higher short end/high yield while keeping duration sensitivity relatively unchanged. In the High Income model, we reduced Nuveen Limited Term Municipal Bond in favor of Nuveen Intermediate Duration Municipal Bond and Nuveen All-American Municipal Bond. With yields across the curve higher than last quarter, we are extending duration to lock in higher yields and position the model for price appreciation if rates retrace. High income mandates can tolerate a total return, higher volatile allocation such as this.
