municipal market update

NOT FDIC INSURED | NO BANK GUARANTEE | MAY LOSE VALUE

OPINION PIECE. PLEASE SEE IMPORTANT DISCLOSURES IN THE ENDNOTES.

Municipal market update

30 April 2022

2Municipal market update


• The path of inflation remains the wild card for 2022, with further uncertainty posed by geopolitical events. The Federal Reserve is focused on combating inflation.

• The Fed has completed two interest rate hikes in 2022, and more are expected throughout the year.

• Peak economic expansion is behind us, but growth remains strong as the economy continues to normalize.

• Municipal bond supply is expected to be flat to modestly down.

• Technical factors are driving negative municipal returns year-to-date; fundamentals remain sound.

• Credit fundamentals are strong; revenue collections and reserves are the highest in decades.

• Covid-19 outbreaks are more regionalized and broad shutdowns are unlikely.

• In an environment with volatile interest rates and strong credit conditions, we expect high yield municipal bonds to outperform relative to investment grade municipals.

2022 municipal market themes

Certain statements may be deemed forward-looking statements. Please note that any such statements are not guarantees or intended to constitute a prediction of any future performance; actual results or developments may differ materially from those projected.



Rate hikes:

• As expected, the Fed hiked rates by 25 bps in March and 50 bps at the May FOMC meeting

• We expect two more 50 bps hikes, at the June and July meetings, followed by three 25 bps hikes at subsequent meetings

Balance sheet reduction:

• Formal announcement in May as expected, setting up June start date

• Consistent with expectations, maximum monthly runoff capped at $60B in Treasuries and $35 billion in MBS per month

Fed is reducing monetary policy accommodation

Data sources: Bloomberg; Federal Reserve Projection Materials. Fed funds rate as of 4 May 2022 and Fed forecasts as of 16 Mar 2022. Fed forecast represents the median forecast of each Federal Open Market Committee participant for the midpoint of the fed funds rate at year ends 2022, 2023, 2024 and longer run. Month 0 shows first rate increase. A basis point is a common unit of measure for interest rates and other percentages in finance. One basis point is equal to 1/100th of 1%, or 0.01% (0.0001).

Path of fed funds target rate compared to past cycles

+300 bps

+175 bps

+425 bps

+225 bps

+75 bps

1.9%

2.8% 2.8% 2.4%

0%

1%

2%

3%

4%

5%

6%

7%

8%

0 6 12 18 24 30 36 42 48 LongerRun

Fed

fu

nd

s r

ate

Months after initial tightening

1994 Cycle 1999 Cycle 2004 Cycle 2015 Cycle Current Cycle Fed Forecast

We think Fed policy will operate on two axes:



Impending Fed tightening is already well-anticipated by markets

Data sources: Federal Reserve Board, Bloomberg, as of 31 Mar 2022. Data source: Bloomberg, as of 31 Mar 2022.

Markets are already pricing in rate hikes, and runoff historically led to flatter curves• Futures markets and front-end rates already incorporate Fed rate hikes, including even more near-term hikes than the FOMC’s latest

projections

• Historically, the yield curve flattened during the period of balance sheet runoff, and the level of yields ultimately fell after an initial increase during the first stage of the policy

Markets are expecting more rate increases Yields ultimately fell and curves flattened during balance sheet runoff

▬ FOMC median dots ▬ Market pricing ▬ 10y yield (lhs) ▬ 2y10y curve (rhs)

-50

0

50

100

150

200

250

300

350

0.0

0.5

1.0

1.5

2.0

2.5

3.0

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5.0

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

QE2 QE3 RUNOFF QE4

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Ma

r-22

May-2

2

Jul-2

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Se

p-2

2

Nov-2

2

Jan

-23

Ma

r-23

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y-2

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Se

p-2

3

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Jan

-24

Ma

r-24

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y-2

4

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p-2

4

Nov-2

4

Jan

-25

Ma

r-25

Ma

y-2

5

Jul-2

5

Se

p-2

5

Nov-2

5



Expect modest further yield increases, and the curve should stay relatively flat.

Interest rates will rise, but remain contained

Data sources: www.treasury.gov; Nuveen estimates, Data and estimates as of 31 Mar 2022.

1.58%1.69%

1.92%

0.13%

0.36%

0.93%

2.28%2.42%

2.32%

2.65%

2.80% 2.80%2.75%

2.90% 2.90%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

2 Year 5 Year 10 Year

31 Dec 2019

31 Dec 2020

31 Mar 2022

30 Jun 2022 est.

31 Dec 2022 est.

Treasury yields



0.0

0.4

0.8

1.2

1.6

2.0

2.4

2.8

3.2

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

Yie

ld (

%)

U.S. Treasury rates are exhibiting more volatility

Data source: U.S. Department of the Treasury, 30 Apr 2022. Past performance is no guarantee of future results.

Years to maturity

Treasury rates have been unpredictable after hitting an all-time low in 2020.

30 Apr 2022

04 Aug 2020

Parts of the Treasury yield curve have now inverted, caused by concerns over inflation, rising rates and geopolitical events.



Markets are concerned about inflation and a more aggressive Fed rate increase cycle

Data sources: U.S. Department of the Treasury; Refinitiv MMD, 30 Apr 2022. Past performance does not predict or guarantee future results. AAA municipals represented by Municipal Market Data (MMD) scale.

0.00

0.40

0.80

1.20

1.60

2.00

2.40

2.80

3.20

3.60

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

Yie

ld (

%)

U.S. Treasury

AAA municipal bonds

U.S. Treasuries vs. AAA-rated G.O. municipal yield curve

Years to maturity

The municipal yield curve is upward sloping and has shown less volatility than Treasuries.



50%

80%

110%

140%

170%

200%

230%

260%

290%

320%

1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022

10-year MMD/UST ratio

10-year ratio average

30-year MMD/UST ratio

30-year ratio average

2020 ratios

60%

120%

180%

240%

300%

1/20 3/20 5/20 7/20 9/20 11/20

Data source: Refinitiv MMD for fair value Municipal 10- and 30-Year Index AAA General Obligation bonds; Bloomberg for 10- and 30-year U.S. Treasury yields, 01 Jan 1984 – 30 Apr 2022. Represents the relative value of municipal yields to Treasury yields. Past performance is no guarantee of future results.

Municipal-to-Treasury ratios are attractive; elevated ratios near 100% present opportunity

AAA municipal’s value relative to Treasuries

Average ratios since 1984

30-year bond ratio: 93%10-year bond ratio: 85%

Current 30-year: 103%

Current 10-year: 94%



An infusion of federal stimulus funds and solid revenue collections have led to improving outlooks.

Rating agency outlooks are brighter

Data source: Moody’s, 31 Dec 2021.

Category Sector 2022 Moody’s outlook 2020 Moody’s outlook

Transportation Airport Positive Negative

Mass transit Stable Negative

Public ports Positive Negative

Toll roads Positive Negative

Higher education Privates Stable Negative

Publics Stable Negative

Community colleges Stable Stable

General obligation State governments Stable Negative

Local governments Stable Negative

Utilities Public power Stable Stable

Water/Sewer Stable Stable

Health care Not for Profit Hospitals/Health care Negative Negative

Other Housing Stable Stable

Not for profit Stable Negative



-120-100-80-60-40-20

0204060

Feb-20 Aug-20 Feb-21 Aug-21 Feb-22

Activity is returning to pre-Covid times

Stadium attendance (average)

Data sources: Chart 1: ESPN; Top 5 NCAA Capacity Stadiums refer to University of Michigan, Pennsylvania State University, The Ohio State University, Texas A&M University and University of Alabama, 31 Dec 2021; Chart 2: census.gov, 31 Dec 2021; Chart 3: Transportation Security Administration (TSA), 30 Apr 2022; Chart 4: OpenTable, 18 Feb 2020 – 30 Apr 2022.

0

100

200

300

400

500

600

Q116

Q117

Q118

Q119

Q219

Q319

Q419

Q120

Q220

Q320

Q420

Q121

Q221

Q321

Q421

Total Sales Income

State & local government tax revenue collections ($ billions)

0

5,000

10,000

15,000

20,000

Jan-20 Apr-20 Jul-20 Oct-20 Jan-21 Apr-21 Jul-21 Oct-21 Jan-22 Apr-22

TSA passenger checkpoints Seated diners (% change from 2019)

0

40,000

80,000

120,000

2019 2020 2021

NFL stadiums NCAA largest 5 stadiums



0

100

200

300

400

500

600

700

1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021

Basis

po

ints

HY - AAA

HY - AAA average

Pre-crisis average

High yield credit spreads have been stable since the beginning of the year

Data source: Bloomberg, Refinitiv MMD, 31 Oct 1995 – 30 Apr 2022. Chart shows data to the earliest period available. Pre-crisis period is 31 Oct 1995 – 31 Dec 2007. Past performance does not predict or guarantee future results. High yield municipal yields represented by the Bloomberg High Yield Municipal Index; AAA municipal yields represented by Municipal Market Data (MMD) yields for AAA rated 20-year bonds. High yield or lower-rated bonds and municipal bonds carry greater credit risk, and are subject to greater price volatility. Ratings shown are from S&P and are subject to change. AAA,AA,A, and BBB are investment grade ratings; BB,B, CCC/CC/C and D are below-investment grade ratings. Different benchmarks, economic periods, methodologies and market conditions will produce different results.

Bloomberg High Yield Municipal Index versus AAA yields

HY – AAA spread average: 254 bps

Pre-crisis average: 190 bps

195 bps



1.00.5

1.10.5

0.9 0.9 0.21.6

3.44.3

2.43.8

2.8

1.52.3

1.80.8

2.31.3

2.2 2.1

0.3

$0

$5

$10

$15

$20

$25

$30

$35

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022YTD

Mu

nic

ipa

l p

aym

en

t d

efa

ult

s (

$ b

illi

on

s)

27.8

22.7

Defaults remain in line with historical trends

Data sources: Bank of America/Merrill Lynch Research, 29 Apr 2022, default data as of 31 Mar 2022. Data represents defaults on the entire universe of bonds, both rated and unrated, and includes Puerto Rico defaults.

Market total

Excluding Puerto Rico

Puerto Rico

Municipal payment defaults

Nursing homes and industrial development bonds accounted for 64% of defaults in 2020 and 75% in 2021.



Municipal recovery rates are significantly higher than corporates

1 Municipal average weighted recoveries shown since 1970, and corporate average weighted recoveries since 1987.

2 Puerto Rico includes COFINA recovery. Other debt, including retiree benefits, is not yet determined under Commonwealth Plan of Adjustment (POA). Puerto Rico GO bonds were exchanged on 15 March 2022. Recovery will depend on performance of sales tax.

Data source: Moody’s Investors Service, 25 Feb 2016; U.S. Municipal Bond Defaults and Recoveries, 1970 – 2020, 09 Jul 2021. Past performance does not predict or guarantee future results.

Municipal average weighted recoveries have been 68%, as compared to recoveries for corporates of 47%.1 Retirees with pensions have priority in municipal recoveries.

0%

20%

40%

60%

80%

100%

Central Falls, RI Vallejo, CA Jefferson County,AL

Harrisburg, PA Stockton, CA Detroit, MI San Bernardino,CA

Puerto RicoCOFINA

Reco

very

level

Debt

Pensions

Other Post-EmploymentBenefts (OPEBs)

Recoveries in large municipal bankruptcies

2



Municipal bonds have historically defaulted at rates lower than equivalently rated corporates

1 Data source: Moody’s Investors Service, U.S. Municipal Bond Defaults and Recoveries, 1970 – 2021, 21 Apr 2022. Past performance does not predict or guarantee future results. The universe for the study represents approximately 12,500 fundamental U.S. public finance ratings from Moody’s.

Moody’s average cumulative default rates

Municipals vs. corporates, 1970-20211

YEAR 5 YEAR 10

Rating Corporate Municipal Difference Corporate Municipal Difference

Aaa 0.08% 0.00% 0.08% 0.35% 0.00% 0.35%

Aa 0.28% 0.01% 0.28% 0.76% 0.02% 0.74%

A 0.68% 0.03% 0.65% 1.96% 0.10% 1.86%

Baa 1.38% 0.46% 0.92% 3.45% 1.06% 2.38%

Ba 7.42% 1.88% 5.55% 14.78% 3.40% 11.38%

B 20.12% 11.67% 8.45% 33.42% 16.70% 16.73%

Caa-C 33.66% 19.04% 14.62% 49.04% 23.71% 25.33%



Puerto Rico emerges from bankruptcy

1 Other Clawback Entities (Pre-PROMESA): Mediation ongoing; claims include ~$2 billion PRIFA and ~$420 million CCDA and MBA. 2 Commonwealth (Pre-PROMESA): Includes GO/PBA claims of $19 billion, General Unsecured Claims ~$5 billion, ERS ~$3 billion. 3 PREPA (Post-plan): Still in process. PREPA is not yet restructured and is currently subject to executing the 2019 PREPA RSA. Assuming maximum haircut of 32.5% as contemplated in May 2019 PREPA RSA.

Data sources: Puerto Rico Fiscal Agency & Financial Advisory Authority, Fact Sheet – Plan of Adjustment – Amended POA, based on POA 1 Jan 2022; The Bond Buyer. “As Plan of Adjustment becomes effective, restructured Puerto Rico debt hits market.” 16 Mar 2022. POA data excludes pensions. HTA: Highways and Transportation Authority, PREPA: Puerto Rico Electric Power Authority, PRASA: Puerto Rico Aqueduct and Sewer Authority, GDB: Government Development Bank, COFINA: Sales Tax-Backed Bonds. Corporacion del Fondo de Interes Apremiante de Puerto Rico, PBA: Public Building Authority, PRIFA: Puerto Rico Infrastructure Financing Agency, ERS: Employee Retirement System, RSA: Restructuring Support Agreement.

• Direct debt obligations reduced to $7 billion from $34 billion. New GO bonds benefit from enhanced security pledge.

• CVI holders may benefit from outperformance in sales tax collections.

• New debt management policy limits Puerto Rico’s ability to overleverage in the future.

• Plan of Adjustment requires pension reform measures and established new pension reserve trust with annual funding requirements.

• The Puerto Rico Electric Power Agency (PREPA) and Highway and Transportation Authority (HTA) remain in bankruptcy.

Plan of Adjustment: before and after

18

12

5

3

5

5

9

6

27

7

6

1

0

10

20

30

40

50

60

70

Pre-PROMESA Obligations 2021: Post-Plan Obligations

Ob

lig

ati

on

s (

$ b

illi

on

s)

Other Clawback Entities

HTA

Commonwealth

PREPA

PRASA

GDB

COFINA

722

1

2

3

34

On 15 March 2022, bondholders exchanged legacy bonds for new GO debt, a cash consideration and Contingent Value Instrument (CVI).



$0

$100

$200

$300

$400

$500

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022YTD

To

tal

mu

nic

ipa

l is

su

an

ce (

$ b

illi

on

s)

Municipal supply is restrained, and Fed rate increases may further limit supply

Data source: Securities Industry and Financial Markets Association (SIFMA.org), U.S. Bond Market Issuance and Outstanding, 04 Apr 2022 for period ending 31 Mar 2022. The average total issuance shown is for the period 01 Jan 2003 – 31 Dec 2021.

$399 B

New tax laws effective in 2018 removed the ability to advance refund bonds at tax-exempt rates, further limiting constrained tax-exempt supply.

Municipal issuance

Tax-exempt issuance ($)

Taxable municipal issuance ($)

Average total issuance



11.6

8%

5.1

6%

9.6

0%

5.3

1%

4.4

8%

3.5

1% 4.8

4%

3.3

6%

-2.4

7%

12.9

1%

2.3

7%

10.6

9%

6.7

8%

-2.5

5%

9.0

5%

3.3

0%

0.2

5%

5.4

5%

1.2

8%

7.5

4%

5.2

1%

1.5

2%

-8.8

2%

-8%

-3%

2%

7%

12%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022YTD

Municipals have shown resilience during uncertain environments

Data source: Bloomberg, L.P., 30 Apr 2022. The average annualized return shown is for the period 01 Jan 2000 – 31 Dec 2021. Past performance is no guarantee of future results. All investments carry a certain degree of risk, including possible loss of principal, and there is no assurance that an investment will provide positive performance over any period of time. Index returns include reinvestment of income and do not reflect investment professional and other fees that would reduce performance in an actual client account.

Bloomberg Municipal Bond Index Returns (%)

Terrorist

attacks

Corporate

accounting

scandals

Fed funds rate

raised 17 times

Global

financial

crisis

Debt ceiling

U.S. downgrade

Taper

tantrumFed funds rate increases

Monoline

insurance

downgrade

Municipal

default

scare

4.97%

Average

annualized

return

Covid-19

pandemic

Municipal market volatility has increased since 2007. YTD performance is a result of technical conditions, but fundamentals remain sound.



Municipals have exhibited lower volatility with strong risk-adjusted returns

Data source: Morningstar, period ending 30 Apr 2022. Past performance is no guarantee of future results. Representative Indexes: Treasuries: Bloomberg U.S. 10-20 Year Treasury Index and the Bloomberg U.S. 20+ Year Treasury Index; Global Bonds: Bloomberg Global Aggregate Unhedged Index; High Yield Corporates: Bloomberg High Yield Corporate Index; International Equity: MSCI EAFE Index; Emerging Markets: MSCI Emerging Markets Index; U.S. Equity: S&P 500 Index; High Yield Municipals: S&P Municipal High Yield Index and Investment Grade Municipals: Bloomberg Municipal Bond Index.

-0.4

0.0

0.4

0.8

1.2

U.S. Treasury10-20 Year

U.S. Treasury20+ Year

Global Bonds High YieldCorporates

InternationalEquity

EmergingMarkets

U.S. Equity High YieldMunicipals

InvestmentGrade

Municipals

Sharp

e r

atio

0

5

10

15

20

U.S. Treasury10-20 Year

U.S. Treasury20+ Year

Global Bonds High YieldCorporates

InternationalEquity

EmergingMarkets

U.S. Equity High YieldMunicipals

InvestmentGrade

Municipals

Sta

ndard

devia

tio

n

3 year 5 year 10 year

Municipals have exhibited low volatility among asset classes

Municipals have been relatively attractive on a risk-adjusted basis



The way rates rise can determine how fixed income may react

Data sources: Bloomberg, www.federalreserve.gov., data indicates changes in fed funds rates. Data shown applies to the actual time periods noted in the table. Past performance does not predict or guarantee future results. One basis point equals .01%, or 100 basis points equal 1%. Different benchmarks and economic periods will produce different results. Other methods and market conditions may result in slightly different outcomes. All investments carry a certain degree of risk, including possible loss of principal, and there is no assurance that an investment will provide positive performance over any period of time. Each period has its own specific factors that may help or hurt the total returns of bonds. These may be economic in nature or technically driven.

Period 1

04 Feb 1994 to

01 Feb 1995

Period 2

30 Jun 1999 to

16 May 2000

Period 3

30 Jun 2004 to

29 Jun 2006

Period 4

15 Dec 2015 to

19 Dec 2018

Period 5

16 Mar 2022 to

?

Starting rate level 3.00% 4.75% 1.00% 0 to 25 bps 25 bps

Number of hikes 7 6 17 9 2

Duration 12 Months 10 Months 24 Months 36 months ?

Ending rate level 6.00% 6.50% 5.25% 2.50% ?

Magnitude 300 basis points 175 basis points 425 basis points 225 basis points ?

Fed funds rising rate periods rates since 1994

http://www.federalreserve.gov/



The way rates rise can affect returns along the yield curve

Data source: Bloomberg L.P. Data shown applies to the actual time periods noted in the table. Past performance does not predict or guarantee future results. Representative Indexes: 1-Year Bonds: Bloomberg 1-Year Municipal Bond Index; 3-Year Bonds: Bloomberg 3-Year Municipal Bond Index; 5-Year Bonds: Bloomberg 5-Year Municipal Bond Index; 10-Year Bonds: Bloomberg 10-Year Municipal Bond Index; 20-Year Bonds: Bloomberg 20-Year Municipal Bond index; 22+-Year Bonds: Bloomberg Long Municipal Bond Index; Municipal Bond Market: Bloomberg Municipal Bond Index. Different benchmarks and economic periods will produce different results. Other methods and market conditions may result in slightly different outcomes. Index returns include reinvestment of income and do not reflect investment professional and/or other fees that would reduce performance in an actual client account. All investments carry a certain degree of risk, including possible loss of principal, and there is no assurance that an investment will provide positive performance over any period of time. Each period has its own specific factors that may help or hurt the total returns of bonds. These may be economic in nature or technically driven.

Period 1

04 Feb 1994 to

01 Feb 1995

Period 2

30 Jun 1999 to

16 May 2000

Period 3

30 Jun 2004 to

29 Jun 2006

Period 4

15 Dec 2015 to

19 Dec 2018

Bloomberg

Municipal

Index

6-month

return

before

Total

return

during

Change

in yields

during

6-month

return

after

Total

return

across

three

periods

6-month

return

before

Total

return

during

Change

in yields

during

6-month

return

after

Total

return

across

three

periods

6-month

return

before

Total

return

during

Change

in yields

during

6-month

return

after

Total

return

across

three

periods

6-month

return

before

Total

return

during

Change

in yields

during

6-month

return

after

Total

return

across

three

periods

1-year 2.45% 2.06% +204 bps 3.77% 8.50% 1.35% 3.11% +92 bps 2.99% 7.63% 0.28% 3.40% +188 bps 2.08% 5.85% 0.39% 4.96% +109 bps 1.54% 4.90%

3-year 3.35% 0.70% +175 bps 5.22% 9.51% 0.66% 2.43% +80 bps 3.89% 7.12% -0.31% 3.46% +132 bps 2.57% 6.78% 1.00% 6.60% +85 bps 2.43% 6.87%

5-year 4.38% -0.95% +152 bps 6.83% 10.45% -0.21% 1.90% +68 bps 5.02% 6.78% -0.90% 4.76% +77 bps 3.22% 7.16% 2.13%. 9.48% +69 bps 3.82% 10.64%

10-year 6.13% -3.49% +142 bps 8.55% 11.19% -1.73% 1.71% +53 bps 6.92% 6.87% -0.81% 7.81% +30 bps 4.77% 12.05% 3.44% 14.40% +49 bps 5.61% 17.10%

20-year 6.53% -4.91% +128 bps 7.64% 9.03% -1.13% -1.04% +70 bps 8.85% 6.50% -0.18% 12.53% -20 bps 5.52% 18.53% 3.59% 17.36% +53 bps 6.55% 20.37%

22+year 6.73% -6.21% +128 bps 8.29% 8.40% -1.68% -2.68% +75 bps 9.69% 4.95% -1.26% 15.93% -47 bps 6.17% 21.53% 4.20% 18.61% +48 bps 7.31% 22.37%

Yield curve flattened 76 bpsBest performer: 10-year

Yield curve flattened 17 bps Best performer: 1-year

Yield curve flattened 235 bpsBest performer: 22+

Yield curve flattened 61 bpsBest performer: 22+



Staying the course has benefited investors

Since 2008, there have been five periods when municipal yields increased by at least 100 basis points in less than one year.

Taper

tantrum

Global financial

crisisMay 2013 – Sept 2013

2008 2010 2012 2014

Reduced market

liquidity after

collapse of

Lehman Brothers

Strong supply and

prediction of uptick

in defaults and

bankruptcies

Fed tapering, Detroit

bankruptcy filing and

Puerto Rico challenges

Municipal

default scareOct 2010 – Jan 2011

2016 2018 2020

Covid-19

pandemic

Dramatic selloff and

decoupling of

municipals and

Treasuries

Brexit |

U.S. electionJuly 2016 – Dec 2016

Near-historic low yields

after Brexit vote and

U.S. election

Sept 2008 – Oct 2008

Municipal bond market yields as represented by Bloomberg Municipal Bond Index.

Mar 2020

In 2022, we entered another period of municipal market volatility, where anticipated Fed rate increases, inflation concerns and geopolitical events led to rapid municipal yield increases.



$88,9

75

$93,5

43

$93,2

43

$94,2

86

$89,0

59$

106,5

88

$107,5

90

$102,9

02

$100,2

95

$100,8

92

$101,4

72

$106,0

38

$100,7

04

$99,6

03

$94,8

50

$99,5

00

$106,2

03

$100,2

97

$9

8,7

40

$94,0

82

$95,0

37

$104,4

98

$100,1

35

$97,7

95

$91,4

08

$0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

After yield spike Staying invested Missed 2 weeks of recovery

Missed 1 month of recovery Missed 3 months of recovery

Missing even the first two weeks of a market rebound resulted in lower rates of recovery

Value of a hypothetical $100,000 portfolio

Portfolios were eventually compensated for patience

Data source: Bloomberg L.P., as of 31 Mar 2020. Data shown applies to the actual time periods noted in the table. Representative Index: Bloomberg Municipal Bond Index. Nuveen analyzed five periods where municipal yields increased by at least 100 basis points in less than one year. Nuveen examined the total return of hypothetical $100,000 portfolios held for 3-, 6-, and 12-month periods following the spike. In this chart, the portfolios were held for 12 months following the spikes. Hypothetical examples are shown for illustrative purposes only and do not represent the performance of an actual portfolio. Individual investor results will vary. Different benchmarks and economic periods will produce different results. Other methods and market conditions may result in slightly different outcomes. Index returns include reinvestment of income and do not reflect investment professional and/or other fees that would reduce performance in an actual client account. Hypothetical results are no guarantee of future results.

Period 1 Period 2 Period 3

01 May 2013 –

05 Sep 2013

12 Oct 2010 –

14 Jan 2011

12 Sep 2008 –

15 Oct 2008

Declined initially as yields rose

Increased if remained fully invested for 12 months

Missed out after markets recovered

What happened to principal value?

Period 4

06 Jul 2016 –

01 Dec 2016

Period 5

09 Mar 2020 –

23 Mar 2020

Principal was recouped in a minimum of 3 months and a maximum of 12 months.



-$50

-$40

-$30

-$20

-$10

$0

$10

$20

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Net

flo

ws (

$ b

illi

on

s)

Taper

tantrum

Total municipal net flows High yield municipal net flows Significant market events

Total municipal and high yield municipal net fund flows

Covid-19

pandemic

Municipal fund flows have historically returned after market dislocations

Data source: Morningstar Direct, 01 Jan 2007 – 31 Mar 2022, shown monthly. Industry categories: Municipals represent the total of all all municipal bond open-end funds, including high yield; High yield municipals represent all high yield municipal bond open-end funds. Shading represents significant market events.

Global

financial crisis Municipal

default scare Brexit |

U.S. election



Municipals are attractive on an after-tax basis

1 The taxable-equivalent yield is based on the highest individual marginal federal tax rate of 37%, plus the 3.8% Medicare tax on investment income (the Net Investment Income Tax). Individual tax rates may vary.

2 Some income may be subject to state and local taxes and the federal alternative minimum tax.

Data source: Bloomberg L.P., 30 Apr 2022. Past performance is no guarantee of future results. Yields are yield to worst. Yield to worst is the lowest potential yield that can be received on a bond without the issuer defaulting. Taxable-equivalent yield is the yield a taxable investment needs to possess (before taxes) for its yield to be equal to that of a tax-free municipal investment. The yields shown are based on the highest individual marginal federal tax rate of 37%, plus the 3.8% Medicare tax on investment income. Individual tax rates may vary. They do not take into account the effects of the federal alternative minimum tax (AMT) or capital gains taxes. Representative Indexes: Short Term Corporate Bonds: Bloomberg U.S. Government/Credit 1-3 Year Index; Short Term Municipal Bonds: Bloomberg Municipal Short Index; Intermediate Term Corporate Bonds: Bloomberg U.S. Government/Credit Intermediate Index; Intermediate Term Municipal Bonds: Bloomberg Municipal Intermediate Index; High Yield Corporate Bonds: Bloomberg Corporate High Yield 2% Issuer Capped Index; High Yield Municipal Bonds: Bloomberg High Yield Municipal Bond Index. Different benchmarks, economic periods, methodologies and market conditions will produce different results.

2.86%2.54%

3.43%

2.88%

6.99%

4.87%

0%

2%

4%

6%

8%

10%

Corporate Bonds Municipal Bonds Corporate Bonds Municipal Bonds Corporate Bonds Municipal Bonds

Yie

ld

3.36%

4.29%

8.23%

Short term Intermediate term High yield

Taxable yield

Taxable-equivalent yield1

Tax-exempt yield2

Taxable and tax-equivalent yields

Taxable

equivalent

yield

Tax-exempt yield

(100%-marginal tax rate)=

4.86%

1.75%

1.98%



0

4

8

12

16

20

24

28

32

36

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Deb

t ($

tri

llio

ns

)

U.S. Treasury

Corporate debt

Municipal

U.S. Treasury and corporate debt outstanding has increased, while the amount of outstanding municipal bonds has remained generally flat.

Municipal securities outstanding are not growing as quickly as other fixed income markets

Data sources: SIFMA, Bloomberg, Federal Reserve, U.S. Treasury, 31 Mar 2022 for period ending 31 Dec 2021.

+78%

+211%

+5%

Increase in securities

outstanding

since 2009 (%)



Building individual bond portfolios has become more difficult

Data source: Assets and inventory data from Federal Reserve Flow of Funds ending 10 Mar 2022.

Professional managers can help in an environment of lower inventory.

0

200

400

600

800

1000

1200

0

10

20

30

40

50

60

70

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Munic

ipal m

utu

al f

und a

ssets

($

bill

ions)

Bro

ker/

deale

r m

unic

ipal i

nvento

ry

($ b

illio

ns)

$988 billion (up 161%)

$11 billion (down 83%)

$66 billion

$378 billion

1Q 2008 4Q 2021

MUTUAL FUND ASSETS

BROKER/DEALER INVENTORY

Other factors that support investing with a professional manager:• Sources of liquidity have diminished for individual investors• Municipal assets under management have increased since 2008, adding $610 billion in mutual funds



Outlook

Certain statements may be deemed forward-looking statements. Please note that any such statements are not guarantees or intended to constitute a prediction of any future performance; actual results or developments may differ materially from those projected. Investing involves risk, including possible loss of principal. This information should not be relied upon as investment advice or recommendations. For additional information, please refer to Risks and Important Disclosures provided at the end of this presentation.

• Overall municipal supply may be limited.

• Treasury market volatility has increased, and interest rate volatility is a risk for municipals.

• Municipal-to-Treasury ratios are more volatile, as interest rates between the two markets have decoupled.

• Rapid or unanticipated Fed rate hikes, or other unforeseen events, could increase volatility.

• Inflation has been less contained than originally expected, creating concern for markets and investors.

• Higher yields and interest rate volatility are creating opportunity across various municipal strategies.

• Municipal credit has recovered, and rating agencies have increased their outlook to stable or positive for many holdings and sectors.

• Technical dislocations often attract non-traditional buyers which can support recovery.

• Flexible mandates and strong credit fundamentals support high yield strategies.

• Flexibility regarding curve positioning and credit selection can help long-term outperformance.

Opportunities Challenges



Taxable municipal market



Market trends support investment grade taxable municipals

Data sources: Bloomberg, L.P., Bloomberg indexes, 30 Apr 2022. Past performance is no guarantee of future results. Total returns for a period of less than one year are cumulative.

Returns (%)

Index

Yield to worst

(%)

Spread

(bps)

Effective

duration (years) 1 month QTD YTD 2021

Taxable municipal (AA-) 4.10 108 8.40 -5.35 -8.28 -13.19 0.93

U.S. asset-backed securities (AA+) 3.34 69 2.15 -0.76 -2.88 -3.62 -0.34

U.S. mortgage-backed securities

(AA+)3.59 40 5.60 -3.51 -4.97 -8.31 -1.04

U.S. corporate investment grade

(BBB+)4.30 134 7.64 -5.47 -7.69 -12.73 -1.04

U.S. aggregate bond (AA) 3.47 49 6.40 -3.79 -5.93 -9.50 -1.54

U.S. Treasury (AAA) 2.88 0 6.41 -3.10 -5.58 -8.50 -2.32

Global corporate bonds (BBB+) 3.73 141 6.58 -5.84 -7.44 -12.85 -2.89

Global aggregate (unhedged) (A+) 2.56 48 7.04 -5.48 -6.16 -11.30 -4.71

Characteristics and performance

Technical factors are driving negative returns year to date; fundamentals remain sound.



Taxable municipals have been defensive during Treasury volatility.

Credit spreads

Taxable municipal credit spreads have been more stable than corporate spreads this year

Data source: Bloomberg, L.P., 31 Jan 2018 – 30 Apr 2022. Spread represents option-adjusted spread (OAS). Past performance is no guarantee of future results. Representative indexes: taxable municipals: Bloomberg U.S. Taxable Municipal Bond Index; U.S. corporate bonds: Bloomberg U.S. Corporate Bond Index.

Yield

2018 2019 2020 2021 2022

Basis

poin

ts

Taxable municipals U.S. corporate bonds

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

2018 2019 2020 2021 2022

Yie

ld (

%)




Lower credit quality taxable municipal bonds can provide yield premium

Data source: Bloomberg, L.P., 31 Jan 2018 – 30 Apr 2022. Spread represents option-adjusted spread (OAS). Past performance is no guarantee of future results. Representative indexes: taxable municipals: Bloomberg U.S. Taxable Municipal Bond Index; U.S. corporate bonds: Bloomberg U.S. Corporate Bond Index.

AAA-rated spread

A-rated spread

AA-rated spread

BBB-rated spread

0

50

100

150

200

2018 2019 2020 2021 2022

Basis

poin

ts


0

50

100

150

200

2018 2019 2020 2021 2022

Basis

poin

ts


50

100

150

200

250

2018 2019 2020 2021 2022

Basis

poin

ts


50

150

250

350

450

2018 2019 2020 2021 2022

Basis

poin

ts




Small, idiosyncratic deals may provide yield opportunities

Data source: Bloomberg, L.P., 31 Dec 2021. Based on number of deals listed in Bloomberg Deal Calendar.

1831

197 196

72

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

Less than $50 million $50 - $100 million $100 - $300 million More than $300 million

Num

ber

of deals

Deal size

Smaller deals comprise the majority of new issuance.

Number of taxable municipal deals by size, 2021



Appendix



Over $6 trillion in federal funds benefit individuals and municipalities, promoting financial and economic recovery and growth.

Significant federal stimulus and infrastructure spending benefits the municipal bond market

Federal stimulus/Spending bills

Date signed into law Funding

Coronavirus Aid, Relief and Economic Security Act (CARES I)

27 Mar 2020 $2.2 trillion (stimulus)

Consolidated Appropriations Act (CARES II) 27 Dec 2020 $900 billion (stimulus)

American Rescue Plan Act (ARPA) 11 Mar 2021 $1.9 trillion (stimulus)

Infrastructure Investment and Jobs Act (IIJA) 12 Nov 2021 $1.2 trillion (infrastructure spending):

• $650 billion (existing programs)

• $550 billion (new programs)



0

50

100

150

200

250

300

1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022

Basis

po

ints

BBB - AAA S&P

BBB - AAA S&P average

Pre-crisis average

BBB credit spreads have widened slightly but are still well below average

Data source: Bloomberg, Refinitiv MMD, 30 Apr 1998 – 30 Apr 2022. AAA and BBB rated municipal yields represented by Refinitiv Municipal Market Data (MMD) yields for AAA rated and BBB rated 20-year bonds, respectively. Data to the earliest period available. Pre-crisis period is 30 Apr 1998 - 31 Dec 2007. Past performance is no guarantee of future. Ratings shown are from S&P and are subject to change. AAA,AA,A, and BBB are investment grade ratings; BB,B, CCC/CC/C and D are below-investment grade ratings. Different benchmarks, economic periods, methodologies and market conditions will produce different results.

20-year BBB municipal yields versus AAA municipal yields

BBB – AAA spread average: 99 bps

Pre-crisis spread average: 62 bps

88 bps



High yield municipal bonds have a low correlation to other asset classes

Data source: Morningstar Direct; 01 Jul 1999 – 30 Apr 2022. Past performance is no guarantee of future results. Representative Indexes: Long Treasury: Bloomberg U.S. Treasury Long Index; Global Treasury: Bloomberg Global Ex U.S. Treasury Bond Index; Mortgage-Backed Securities: Bloomberg MBS (fixed rate) Index; U.S. Equity: S&P 500 Index; Broad Bond Market: Bloomberg U.S. Aggregate Bond Index; Emerging Markets Bond: Bloomberg Emerging Market Index; Corporate Investment Grade: Bloomberg U.S. Corporate Investment Grade Index; Corporate High Yield: Bloomberg U.S. Corporate High Yield Index; Asset-Backed Securities: Bloomberg Asset-Backed Securities Index; Municipal Bonds: Bloomberg U.S. Municipal Bond Index.

0.16

0.210.23 0.24

0.34

0.47 0.48 0.49

0.59

0.68

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

Long Treasury Global Treasury Mortgage-backedsecurities

U.S. equity Broad bondmarket

Emergingmarkets bond

Corporateinvestment grade

Corporate highyield

Asset-backedsecurities

Municipal bonds

Correlation to Bloomberg High Yield Municipal Bond Index01 Jul 1999 – 30 Apr 2022

High yield municipal bonds tend to be less cyclical than corporate bonds due to the essential nature of the projects being financed.



Municipals are attractive relative to sovereign debt

Data source: Bloomberg L.P., 30 Apr 2022. Past performance is no guarantee of future results. Municipal bonds represented by the Municipal Market Data (MMD) scale. The taxable-equivalent yield is based on the highest individual marginal federal tax rate of 37%, plus the 3.8% Medicare tax on investment income (the Net Investment Income Tax). Individual tax rates may vary.

• Global central banks monetary and fiscal policies remain generally supportive, but tightening is underway.

• U.S. Treasuries are attractive relative to other developed nations’ sovereign debt.

• Municipals are reporting higher yields, particularly on a taxable-equivalent basis.

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

AustriaAaa/AA+

GermanyAaa/AAA

DenmarkAaa/AAA

SwitzerlandAaa/AAA

Japan A1/A UnitedKingdomAa1/AAA

UnitedStates

Aaa/AA+

MunicipalBonds

Aaa/AAA

MunicipalBonds TEYAaa/AAA

MunicipalBonds

Taxable(AAA MMD)

Yie

ld (

%)

Global bond yields and ratings

2-year

10-year

30-year

Linear (30-year)



Stress in the system can always be a concern

Top 10 typical warning signs of a potential impending municipal bankruptcy

1. Late budget(s) 6. High debt service to total expenditures

2. High turnover 7. Large unfunded pension liability

3. High unemployment 8. Inability to balance budget

4. Low per capita income 9. Small general fund reserves/balance

5. Low real estate market values per capita 10. Statements indicating lack of support for debt service



This material is not intended to be a recommendation or investment advice, does not constitute a

solicitation to buy, sell or hold a security or an investment strategy, and is not provided in a fiduciary

capacity. The information provided does not take into account the specific objectives or circumstances of

any particular investor, or suggest any specific course of action. Investment decisions should be made

based on an investor’s objectives and circumstances and in consultation with his or her financial

professionals.

The views and opinions expressed are for informational and educational purposes only as of the date of

production/writing and may change without notice at any time based on numerous factors, such as market

or other conditions, legal and regulatory developments, additional risks and uncertainties and may not

come to pass. This material may contain “forward-looking” information that is not purely historical in nature.

Such information may include, among other things, projections, forecasts, estimates of market returns, and

proposed or expected portfolio composition. Any changes to assumptions that may have been made in

preparing this material could have a material impact on the information presented herein by way of

example. Past performance does not predict or guarantee future results. Investing involves risk;

principal loss is possible.

All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed.

There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability

for, decisions based on such information and it should not be relied on as such. For term definitions and

index descriptions, please access the glossary on nuveen.com. Please note, it is not possible to invest

directly in an index.

IMPORTANT INFORMATION ON RISK

Investing involves risk; principal loss is possible. All investments carry a certain degree of risk and there is

no assurance that an investment will provide positive performance over any period of time. Investing in

municipal bonds involves risks such as interest rate risk, credit risk and market risk. The value of the

portfolio will fluctuate based on the value of the underlying securities. There are special risks associated

with investments in high yield bonds, hedging activities and the potential use of leverage. Portfolios that

include lower rated municipal bonds, commonly referred to as “high yield” or “junk” bonds, which are

considered to be speculative, the credit and investment risk is heightened for the portfolio. Bond insurance

guarantees only the payment of principal and interest on the bond when due, and not the value of the

bonds themselves, which will fluctuate with the bond market and the financial success of the issuer and the

insurer. No representation is made as to an insurer’s ability to meet their commitments. This information

should not replace an investor’s consultation with a financial professional regarding their tax situation.

Nuveen is not a tax advisor. Investors should contact a tax advisor regarding the appropriateness of tax-

exempt investments in their portfolio. If sold prior to maturity, municipal securities are subject to gain/losses

based on the level of interest rates, market conditions and the credit quality of the issuer. Income may be

subject to the alternative minimum tax (AMT) and/or state and local taxes, based on the state of residence.

Income from municipal bonds held by a portfolio could be declared taxable because of unfavorable

changes in tax laws, adverse interpretations by the Internal Revenue Service or state tax authorities, or

noncompliant conduct of a bond issuer. It is important to review your investment objectives, risk tolerance

and liquidity needs before choosing an investment style or manager.

Nuveen Asset Management, LLC is a registered investment adviser and an affiliate of Nuveen, LLC.

Nuveen provides investment advisory solutions through its investment specialists.

This information does not constitute investment research as defined under MiFID.

GP

P-2

1960

32C

R-M

0522

P 3

5692

Risks and important disclosures

municipal market update

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