Ever since Federal Reserve chairman Jerome Powell told the markets to expect the Fed to cut interest rates several times in 2024, the bond market has been on a tear.
Falling interest rates should ease issuers’ financial burden, so investors should, in theory, be willing to push a little further out on the credit risk spectrum. And for now, that’s what appears to be happening. The downward move in the yield curve has been a rising tide that’s lifted all boats, from Treasuries to junk bonds.
The positive sentiment has extended, as well, to municipal bonds, which are trading near 52-week highs. Some players in the municipal bond market have begun pointing to another long-term factor that favors these muni bonds: the spiraling federal debt.
If federal income tax rates are raised in the future, it will make munis even more attractive since they’re federally tax exempt.
So, let’s look at one closed-end muni bond fund that could be a great addition to your portfolio.
Nuveen Municipal Credit Income Fund
I’m talking about the Nuveen Municipal Credit Income Fund (NZF). Its portfolio consists of munis across all credit ratings.
Nuveen’s website gives us a brief description of the fund:
The Fund seeks to provide current income exempt from regular federal income tax by investing in an actively managed portfolio of tax-exempt municipal securities. Up to 55% of its managed assets may be in securities rated BBB and below at the time of purchase or, if unrated, judged to be of comparable quality by the Fund’s portfolio team, and the Fund uses leverage.
So NZF is a fund that has both investment grade and non-investment grade bonds in its portfolio, although the majority of the bonds it owns are investment grade (28.2% A-rated, 21.7% BBB-rated, 11.3% AA-rated). And the fund uses leverage in order to…
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