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
- The Federal Reserve cut rates by 25 basis points in September, the first reduction since December 2024. In addition, the Fed forecasts 50 basis points of additional cuts during the fourth quarter of 2025 and 25 basis points in 2026. This easing cycle creates a supportive backdrop for interest rate-sensitive assets.
- Municipal bond valuations became increasingly attractive during Q3 2025. Municipal-to-Treasury ratios compressed significantly, with 5-, 10-, and 30-year ratios declining 10%, 6%, and 4% respectively to reach 62%, 70%, and 90% by quarter-end. While high yield municipal spreads widened modestly by two basis points, they remain elevated relative to historical norms. We anticipate credit spreads will tighten in the future, presenting attractive capital appreciation opportunities. Municipal bonds continue to show substantial underperformance in 2025, creating compelling entry points across the curve.
- These market dynamics informed the quarterly adjustments to our models. In the Conservative Model, a small reallocation was made from Nuveen Intermediate Duration Municipal Bond to Nuveen Limited Term Bond. In the Moderate Model, Nuveen Intermediate Duration Municipal Bond exposure was reduced and reallocated to Nuveen Limited Term Bond, Nuveen Short Duration High Yield Municipal Bond, and Nuveen High Yield Bond. In the High-Income Model, Nuveen Limited Term Bond, Nuveen Short Duration High Yield Bond, and Nuveen All-American Municipal Bond allocations were trimmed while increasing Nuveen High Yield Bond and Nuveen Intermediate Duration Bond positions.
