Moving down the credit curve with high yield municipal debt

With falling Treasury yields and potentially lower interest rates, investors recently have been increasingly turning to municipal bonds. A longer-term trend, however, shows a variety of influences that may be sending more municipal investors further down the credit quality curve to high yield. In this paper, “Moving down the credit curve with high yield municipal debt,” Greg Gizzi, head of municipal bonds, examines the high yield municipal category and how this asset class differs substantially from its taxable counterpart.

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IMPORTANT RISK CONSIDERATIONS

Investing involves risk, including the possible loss of principal.

The views expressed represent the Manager's assessment of the market environment as of July 2019, and should not be considered a recommendation to buy, hold, or sell any security, and should not be relied on as research or investment advice. Views are subject to change without notice and may not reflect the Manager's views.

Past performance does not guarantee future results.

Fixed income securities and bond funds can lose value, and investors can lose principal, as interest rates rise. They also may be affected by economic conditions that hinder an issuer’s ability to make interest and principal payments on its debt. Fixed income securities may also be subject to prepayment risk, the risk that the principal of a bond that is held by a portfolio will be prepaid prior to maturity, at the time when interest rates are lower than what the bond was paying. A portfolio may then have to reinvest that money at a lower interest rate.

High yielding, non-investment-grade bonds (junk bonds) involve higher risk than investment grade bonds.

Substantially all dividend income derived from tax-free funds is exempt from federal income tax. Some income may be subject to state or local and/or the federal alternative minimum tax (AMT) that applies to certain investors. Capital gains, if any, are taxable.

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