Municipal markets: Psychology, price pressure, and potential for recovery

Policy statements from the U.S. Federal Reserve, along with Detroit's bankruptcy filing, have shaken municipal bond markets in recent months.

Listen as Portfolio Manager Greg Gizzi puts recent developments in perspective. Among his observations:

  • It's still early, but, based on research, several indications suggest an improvement in technical conditions.
  • State and local governments have taken measures to fortify their finances.
  • At current price levels, we believe municipal bonds may represent good relative value.
  • In a challenging market environment — especially one like today's — diversification and disciplined credit research are important.

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The views expressed represent the Manager’s assessment of the market environment as of August 2013 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.

Carefully consider the Funds’ investment objectives, risk factors, charges, and expenses before investing. This and other information can be found in the Funds’ prospectuses and, if available, their summary prospectuses, which may be obtained by visiting our fund literature page or calling 877 693-3546. Investors should read the prospectus and, if available, the summary prospectus carefully before investing.

Past performance does not guarantee future results.        

Investing involves risk, including the possible loss of principal.

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.

The Fund may also be subject to prepayment risk, the risk that the principal of a fixed income security that is held by the Fund may be prepaid prior to maturity, potentially forcing the Fund to reinvest that money at a lower interest rate.

High yielding, noninvestment 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 the federal alternative minimum tax (AMT) that applies to certain investors. Capital gains, if any, are taxable.

Duration number will change as market conditions change. Therefore, duration should not be solely relied upon to indicate a municipal bond fund’s potential volatility.

A rates market is defined as one in which trading is based on interest-rate movements, and a credit market is one in which trading is based on credit spread levels.

Bond ratings are determined by nationally recognized statistical rating organizations – Standard & Poor’s (S&P), Moody’s Investors Services, and Fitch, Inc. Ratings represent their opinions as to the quality of the securities. Bonds rated AAA represent highest quality. The security’s credit quality, however, does not eliminate risk.

Diversification may not protect against market risk.

(Source: JP Morgan Securities; Lipper US Fund Flows)

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