Municipal bonds
take center stage

In an uncertain bond market,
investors look to the potential
of municipal bonds

Municipal bonds are not just a vehicle for tax efficient investing. They also provide other potential benefits that may make them an attractive option right now.

With the Fed expected to raise interest rates over the course of 2022 and potentially begin quantitative tightening through balance sheet reduction, in our view fixed income investments will be challenged in a way they have not been in a very long time.

We believe navigating this uncertain bond market will require smart, active portfolio management and a focus on finding value and stability amid a potentially volatile landscape. One refuge for bond investors may very well be found in municipal bonds, which have historically provided stability in rising interest rate environments.

Insight Investments’ experienced team of fixed income specialists understands the complex dynamics of managing muni bond portfolios, seeking to identify the right mix of duration, credit quality, and sector exposure, to generate optimal total return for investors.

Why municipal bonds now?

While muni bond prices are feeling the price pressures of rising rates, along with other bond market sectors, there are five key reasons why an allocation in muni bonds may make sense amid higher rates.

Munis, while not immune to the downward price pressures of rising interest rates, have historically done well in a rising rate environment due to the lower volatility and more buy-and hold nature of the asset class.1

Many state and local governments are in sound financial shape.2

A rise in tax receipts, federal government payments, and healthier pension funding levels have left many muni issuers in strong financial condition, which may support stable prices through both improved credit quality and reduced new issuance supply.

Munis offer unique tax benefits.

For high-income earners, municipal bonds continue to represent a sound way to earn tax-free income because muni bonds are exempt from federal taxes, and some are also exempt from state and local taxes.

Muni’s may generate more optimal portfolios for tax-paying investors. A stock/muni portfolio may deliver more efficient returns than the more conventional stock/corporate bond portfolio.

Muni bond defaults remain extremely rare.

Even with the financial stress caused by the COVID-19 pandemic, default rates in municipal bonds were very low and remain lower than taxable corporate bonds over history.3

Approach

Strategy highlight: BNY Mellon High Yield Municipal Bond Fund

We believe, a disciplined active management approach will be key to winning in this category. Our team takes a measured stance that aims for investors to be rewarded for taking incremental risk.

This fund is designed to be agile enough to respond to new opportunities and is built on a bond-by-bond method, where each asset is carefully vetted. The team looks for high-yield bonds that are exempt from federal income tax. The fund is large enough to have a meaningful presence in the market, yet nimble enough to take advantage of opportunities that might not be available to larger competitors.

Our suite of municipal bond funds

BNY Mellon
High Yield Municipal
Bond Fund

Class I DYBIX

The primary goal of the fund is to seek high current income exempt from federal income tax.

Morningstar Category:
High Yield Municipal

Morningstar Rating™ based on risk-adjusted returns as of 12/31/2021. Overall rating for the High Yield Municipal category. Fund ratings are out of 5 stars: Overall 4 stars Class Y (189 funds rated); 3 Yrs. 3 stars Class Y (189 funds rated); 5 Yrs. 4 stars Class Y (153 funds rated); 10 Yrs. 3 stars Class Y (extended rating) (103 funds rated).

BNY Mellon
Opportunistic Municipal
Securities Fund

Morningstar Overall Rating

(270 funds rated)*

Class I DMBVX

The primary goal of the fund is to seek high current income exempt from federal income tax. In pursuit of that goal, it may allocate up to 30% of the portfolio in Municipal names rated below investment grade.

Morningstar Category:
Municipal National Intermediate

Morningstar Rating™ based on risk-adjusted returns as of 12/31/2021 for the fund's Class A, I and Y shares; other classes may have different performance characteristics. Overall rating for the Municipal National Intermediate category. Fund ratings are out of 5 stars: Overall 4 stars Class A and 5 stars Class I and Y (270 funds rated); 3 Yrs. 4 stars Class A and 5 stars Class I and Y (270 funds rated); 5 Yrs. 4 stars Class A and 5 stars Class I and Y (231 funds rated); 10 Yrs. 4 stars Class A and 5 stars Class I (extended rating) and Y (extended rating) (168 funds rated).

BNY Mellon
AMT Free Municipal
Bond Fund

Morningstar Overall Rating

(270 funds rated)*

Class I DMBIX

This fund seeks to be a Municipal core bond offering within a portfolio, pursuing as high a level of current income exempt from federal income tax as is consistent with the preservation of capital.

Morningstar Category:
Municipal National Intermediate

Morningstar Rating™ based on risk-adjusted returns as of 12/31/2021 for the fund's Class A, I and Y shares; other classes may have different performance characteristics. Overall rating for the Municipal National Intermediate category. Fund ratings are out of 5 stars: Overall 4 stars Class A and Y and 5 stars Class I (270 funds rated); 3 Yrs. 3 stars Class A and 4 stars Class I and Y (270 funds rated); 5 Yrs. 4 stars Class A, I (231 funds rated); 10 Yrs. 4 stars Class A and 5 stars Class I (168 funds rated).

Interested in one of our funds?

Get in touch with an investment consultant.

Meet the team

DANIEL BARTON

Head of Research,
Municipal Bonds,
Insight North America, LLC

 

JEFFREY BURGER

Senior Portfolio Manager,
Insight North America, LLC
 

 

THOMAS CASEY

Senior Portfolio Manager,
Insight North America, LLC
 

 

DANIEL RABASCO

Head of Research,
Municipal Bonds,
Insight North America, LLC

 

Insights

Why Municipals are more than just tax benefits

 

Download Insight

Quarterly Commentary

 

Download Insight

Investment Report

 

Download Insight

About BNY Mellon Investment Management

BNY Mellon Investment Management is one of the world’s leading investment management organizations, encompassing BNY Mellon’s affiliated investment management firms and global distribution companies. BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation and may also be used as a generic term to reference the corporation as a whole or its various subsidiaries generally.

About Insight Investment

Insight Investment is a global asset manager, specializing in fixed income, liability-driven investing (LDI) and other outcome-oriented investment solutions. We are an investment led organization, with 290 investment professionals globally, including 90 investment professionals and 210 staff across our US offices.4

We have built our business on the advocacy of our clients, many of which are large institutions. We partner closely with our clients and their financial professionals to help build portfolios and solutions to meet their specific objectives.

Insight became an affiliate within the BNY Mellon multi-manager structure in 2009, and as part of the transition of fixed income teams from Mellon Investments, and introduced Efficient Beta, Municipals and Stable Value capabilities in 2021. Today, Insight is the largest BNY Mellon affiliate, responsible for over $1.15 trillion in assets under management across fixed income, liability driven investing and absolute return and unconstrained investing, and $25.4 billion6 in US Municipal assets.

Contact Us

Our commitment to fully servicing the need of our investment partners is our highest priority.

1 https://www.pewtrusts.org/en/research-and-analysis/data-visualizations/2014/fiscal-50

2 Insight Investment () (municipal investment team) Portfolio Strategy Commentary as of January 2022.

3 Moody’s Investors Service as of December 2020, Average Corporate Debt Recovery Rates for senior unsecured bonds 1970–2020.This study evaluates the performance of Moody’s municipal ratings and their consistency with global corporate ratings. It covers public underlying ratings for all public finance issuers, including U.S. state and local governments, municipal utilities, not-for-profit hospitals, housing agencies, colleges and universities, as well as other municipal issuers with long-term debt ratings. It also includes certain infrastructure and project finance credits that are tracked in parallel in our infrastructure default study. Insured, enhanced, and letter of credit-backed ratings are excluded.

4 As of December 31, 2021. Includes employees of Insight North America LLC (INA) and its affiliates, which provide asset management services as part of Insight, the corporate brand for certain companies operated by Insight Investment Management Limited (IIML).

5 Source: Insight, as of December 31, 2021. Where applicable, assets include discretionary and non-discretionary assets, the notional value of overlay strategies, and assets managed by investment personnel acting in their capacity as officers of affiliated entities. 1 Variations in totals due to rounding. ¹Includes dedicated municipal portfolios and municipal securities included in multi-sector portfolios. 1 Assets under management (AUM) are represented by the value of the client’s assets or liabilities Insight is asked to manage. These will primarily be the mark-to-market value of securities managed on behalf of clients, including collateral if applicable. Where a client mandate requires Insight to manage some or all of a client’s liabilities (e.g. LDI strategies), AUM will be equal to the value of the client specific liability benchmark and/or the notional value of other risk exposure through the use of derivatives. Insight North America (INA) is part of ‘Insight’ or ‘Insight Investment’, the corporate brand for certain asset management companies operated by Insight Investment Management Limited including, among others, Insight Investment Management (Global) Limited, Insight Investment International Limited and Insight Investment Management (Europe) Limited. Advisory services referenced herein are available in the US only through INA. Figures shown in USD. FX rates as per WM Reuters 4pm spot rates.

6 Includes dedicated municipal portfolios and municipal securities included in multi-sector portfolios. See Important Information in disclosure statements.

* Source: Morningstar. The Morningstar Rating TM for funds, or "star rating," is calculated for managed products with at least 3-year history. It is calculated based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a managed product's monthly excess performance (not including the effects of sales charges, loads and redemption fees if applicable), placing more emphasis on downward variations and rewarding consistent performance. Managed products, including open-end mutual funds, closed-end funds and exchange-traded funds, are considered a single population for comparative purposes. The top 10% of products in each product category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars, and the bottom 10% receive 1 star. The Overall Morningstar Rating for a managed product is derived from a weighted average of the performance figures associated with its 3-, 5-, 10-year (if applicable) Morningstar Rating metrics. (c) Morningstar, Inc. All rights reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete, or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from use of this information. Past performance is no guarantee of future results. Each fund represents a single portfolio with multiple share classes that have different expenses structures. Other share classes may have achieved different results. Ratings do not reduce investment risk and are subject to change.

 

Investors should consider the investment objectives, risks, charges, and expenses of a mutual fund carefully before investing. Download a prospectus, or summary prospectus, if available, that contains this and other information about the fund, and read it carefully before investing.

Bonds are subject to interest rate, credit, liquidity, call and market risks, to varying degrees. Generally, all other factors being equal, bond prices are inversely related to interest-rate changes and rate increases can cause price declines. High yield bonds involve increased credit and liquidity risk than higher rated bonds and are considered speculative in terms of the issuer’s ability to pay interest and repay principal on a timely basis.

The amount of public information available about municipal securities is generally less than that for corporate equities or bonds. Legislative changes, state and local economic and business developments, may adversely affect the yield and/or value of municipal securities. Other factors include the general conditions of the municipal securities market, the size of the particular offering, maturity of the obligation, and the rating of the issue. Income for national municipal funds may be subject to state and local taxes. Income may be subject to state and local taxes for out-of-state residents. Some income may be subject to the federal alternative minimum tax for certain investors. Capital gains, if any, are taxable.

Recent market risks include pandemic risks related to COVID-19. The effects of COVID-19 have contributed to increased volatility in global markets and will likely affect certain countries, companies, industries and market sectors more dramatically than others. To the extent the funds may overweight its investments in certain countries, companies, industries or market sectors, such positions will increase a client’s exposure to risk of loss from adverse developments affecting those countries, companies, industries or sectors.

The Morningstar RatingTM for funds, or "star rating", is calculated for managed products with at least a 3-year history. It is calculated based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a managed product's monthly excess performance (not including the effects of sales charges, loads and redemption fees if applicable), placing more emphasis on downward variations and rewarding consistent performance. Managed products; including open-end mutual funds, closed-end funds and exchange-traded funds; are considered a single population for comparative purposes. The top 10% of products in each product category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars, and the bottom 10% receive 1 star. The Overall Morningstar Rating for a managed product is derived from a weighted average of the performance figures associated with its 3-, 5-, and 10-year (if applicable) Morningstar Rating metrics. ©2022 Morningstar, Inc. All rights reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete, or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information.

Past performance is no guarantee of future results. The fund represents a single portfolio with multiple share classes that have different expense structures. Other share classes may have achieved different results.

Ratings do not reduce investment risk and are subject to change.

Investment advisory services in North America are provided by Insight North America LLC, a registered investment adviser and regulated by the U.S. Securities and Exchange Commission (SEC). Insight North America LLC is associated with other global investment managers that also (individually and collectively) use the corporate brand Insight Investment and may be referred to as "Insight" or "Insight Investment".

This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product and should not serve as a primary basis for investment decisions. Prospective investors should consult a legal, tax or financial professional in order to determine whether any investment product, strategy or service is appropriate for their particular circumstances. Views expressed are those of the author stated and do not reflect views of other managers or the firm overall. Views are current as of the date of this publication and subject to change. The information is based on current market conditions, which will fluctuate and may be superseded by subsequent market events or for other reasons. References to specific securities, asset classes and financial markets are for illustrative purposes only and are not intended to be and should not be interpreted as recommendations. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission.

BNY Mellon Investment Adviser, Inc. Insight North America LLC (the funds’ sub-adviser) and BNY Mellon Securities Corporation, (distributor) are companies of BNY Mellon.

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