The Municipal Bond Market Has Changed
Has your portfolio adapted?
The risks and complexities of investing in individual municipal
bonds have changed dramatically since the financial crisis.
Understanding these changes may help investors evaluate
opportunities in the municipal bond market.
Because while the markets change,
your investment goals don’t.
Get started in three steps:
1
Understand the issues
2
Identify portfolio needs
3
Evaluate solutions
The need for independent, fundamental research has intensified as the state of municipal
finances has become more complex. Increasing investor demand and declining net new
supply have further complicated participation in this market. Several credit and market
factors are affecting municipal dynamics.
Municipal Market Changes Underscore the Need for Research
Events in recent years have stressed the financial health of cities, states and other borrowing entities.
These structural changes have led to volatility in credit spreads, the yield premium for purchasing
lower-quality bonds.
The Result: Opportunity Exists for Those Who Know How to Assess Risk
Credit Spreads vs. AAA-Rated Municipal Bonds (January 1, 1999 – June 30, 2015)
Yield Spread (%)
BBB
A
AA
0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 Corporate Accounting Scandals Bond Insurers’ Ratings Cut Lehman Brothers Bankruptcy Municipal Bond Market Collapse PredictedSource: S&P/Investortools. Data from 1/1/99 to 6/30/15. Past performance is no guarantee of future results. Chart does not represent the past performance of any
Nuveen product. Chart shows yield difference between the AAA-rated Municipal Bond Yield Curve and the AA-, A- and BBB-rated Municipal Bond Yield Curves.
Insurance Is Scarce – and Insurers Are Lower Rated
Today, just over 5% of new municipal bond issuance carries insurance
1— and major insurers have
either lost their strong credit ratings or are under threat of a downgrade.
Major Bond Insurers No Longer Have AAA Credit Ratings
Sample Municipal Insurer Ratings
2Insurer
1/1/07 Rating
6/30/15 Rating: Moody’s
6/30/15 Rating: S&P
Ambac AAA Withdrawn Not rated
Assured Guaranty AAA A2 (stable outlook) AA (stable outlook)
National (former MBIA) AAA A3 (negative outlook) AA- (stable outlook)
1 Source: Bond Buyer.
2 Source: Bloomberg. Municipal Insurers are displayed for informational purposes only; their mention does not constitute a recommendation to buy or sell or imply inclusion as holdings in any Nuveen Municipal Securities portfolio.
Understand the Issues
Rating Scales Have Changed
The major ratings agencies shifted to a global rating scale that “lifted” credit ratings of municipal
bond issuers, especially those with lower ratings. Now many municipal bonds boast A1 or A2 credit
ratings — but may still carry the risks of securities rated Baa(1,2,3).
The New Global Scale Has Blurred the Distinction Between Credit Profiles
Rating Changes of General Obligation and Essential Service Revenue Bonds
Moody’s
Fitch
Old Rating
New Rating
Notches of Lift
Old Rating
New Rating
Notches of Lift
Aaa Aaa 0 AAA AAA 0
Aa1 Aa1 or Aaa 0 or 1 AA+ AAA 1
Aa2 Aa1 1 AA A+ 1
Aa3 Aa2 1 AA- AA 1
A1 Aa2 2 A+ AA- 1 A2 Aa3 2 A AA- 2 A3 A1 2 A- A+ 2 Baa1 A1 3 BBB+ A 2 Baa2 A2 3 BBB A- 2 Baa3 Baa1 or A3 2 or 3 BBB- BBB+ 2
Below Inv. Grade No Change 0 Below Inv. Grade Case by Case Case by Case
Source: Recalibration of Moody’s U.S. Municipal Ratings to its Global Rating Scale, Moody’s Investors Service, March 2010; Recalibration of U.S. Public Finance Ratings, Fitch Ratings, March 25, 2010.
Individual Investors Are at a Pricing Disadvantage
The inefficient and negotiated municipal market can make it difficult for retail investors to obtain
the best prices. Buying or selling individual municipal bonds is generally more expensive for
individual investors who buy smaller blocks of bonds than institutional investors that buy in bulk.
With Income As a Priority, Pricing Matters
Median Trading Spreads in Fixed Coupon Municipal Securities (January 1, 2014 – December 31, 2014)
Median Trading Spreads
Trade Size All Trades $1M+ $100K - $1M $25K - $100K $25K or less 0.82% 0.31% 0.60% 1.09% 1.41%
Lowest Trading Costs: Large Institutional Investors
Understand the Issues
In the current environment, it may be harder for investors to research, purchase and
hold individual municipal bonds. Your financial advisor can work with Nuveen Asset
Management to analyze your existing fixed income holdings.
The confidential, complimentary, no-obligation Municipal Bond Portfolio Review provides a basis
for discussing portfolio strengths and potential challenges. The Portfolio Transition Analysis is an
enhanced feature that outlines which bonds may be held, may require further review or could be
sold when converting a portfolio to a separately managed account.
2
Identify Portfolio Needs
A Personalized Municipal Bond Portfolio Review Offers Clarity and Direction*
Portfolio Transition Analysis
CUSIP Par$000s MarketValue %DescriptionInsurer AMT Moody’s/S&P Rating EffectiveMaturity DurationModified MarketConvexity Market Price Market Yield Coupon Call Date Call Price Par Call
567288RQ0 115 2.73 Maricopa Cnty Ariz Uni Sch Dis N Aa1/AA 07/01/2014 0.19 0.000 100.720 0.13 4.000 640082D83 115 2.80 Neenah Wis Prerefunded/ETM N Aa2/NR 03/01/2015 0.84 0.005 103.682 0.18 4.500 74514LMY0 125 2.89 Puerto Rico Comwlth N Baa3/BBB- 07/01/2015 1.11 0.009 97.425 7.55 5.250 718814XM3 110 2.75 Phoenix Ariz N Aa1/AA+ 07/01/2015 1.15 0.009 105.720 0.17 5.000 810489LT9 200 5.20 Scottsdale Ariz Mun Ppty Corp N /AAA 07/01/2016 2.07 0.027 110.048 0.38 5.000 879709P72 125 3.18 Tempe Ariz N /AAA 07/01/2016 2.09 0.028 107.873 0.38 4.000 79575DD64 175 4.50 Salt River Proj Ariz Agric Imp N Aa1/AA 01/01/2017 2.54 0.040 109.073 0.59 4.000 375280JY1 250 6.70 Gilbert Ariz N Aa1/AA 07/01/2017 2.95 0.054 113.422 0.73 5.000 590536DD7 130 3.47 Mesa Ariz Str & Hwy Rev Insurer: NPFG N A2/AA 07/01/2017 2.95 0.053 113.118 0.82 5.000 567505KJ0 100 2.77 Maricopa Cty Ariz Un High Sch Insurer: AGMC N Aa2/AA 07/01/2018 3.77 0.087 117.155 1.05 5.250
040688JE4 100 2.73 Arizona Wtr Infrastructure Fin N Aaa/AAA 10/01/2018 4.04 0.098 116.885 1.09 5.000 040506MT1 100 2.65 Arizona Health Facs Auth Hosp N NR/BBB+ 02/01/2019 4.25 0.107 112.720 2.18 5.000 040647DL0 80 2.22 Arizona St Transn Brd N Aa2/AA 07/01/2019 4.59 0.127 117.781 1.43 5.000 810526MR1 100 2.80 Scottsdale Ariz Wtr & Swr Rev N Aaa/AAA 07/01/2019 4.60 0.127 118.551 1.29 5.000 215075EZ1 75 1.96 Cook Cnty Ill Sch Dist No 148
Prerefunded/ETM N A1/NR 12/01/2019 4.36 0.121 110.378 2.24 4.500 12/01/2018 798147T95 115 2.77 San Jose Calif Redev Agy Tax A
Insurer: SYNCORA N Ba3/BBB 08/01/2020 3.01 -0.153 102.524 3.43 4.250 08/01/2017 74526QDB5 100 2.31 Puerto Rico Elec Pwr Auth Pwr
Insurer: NPFG N Baa1/AA- 07/01/2022 6.51 -1.486 97.374 5.40 5.000 07/01/2015 566816GX6 100 2.39 Maricopa Cnty Ariz Indl Dev Au N A3/A 07/01/2023 0.19 0.000 100.882 0.62 5.375 07/01/2014 040588ZK4 75 1.84 Arizona St Ctfs Partn
Insurer: AGMC N A1/AA- 10/01/2023 5.27 0.089 105.079 3.06 4.000 04/01/2020 04048RET9 50 1.36 Arizona Brd Regents Ariz St Un N Aa3/AA 07/01/2024 5.29 0.168 115.142 2.59 5.250 07/01/2020 382512DP3 50 1.37 Goodyear Ariz Pub Impt Corp Mu N Aa3/AA- 07/01/2024 6.68 0.271 115.945 3.04 5.250 07/01/2022 71883RLT8 180 4.96 Phoenix Ariz Civic Impt Corp W N Aa2/AAA 07/01/2024 6.06 0.220 116.814 2.44 5.000 07/01/2021 154686KA6 100 2.78 Central Ohio Solid Waste Auth N Aaa/NR 12/01/2024 6.68 0.272 117.343 2.61 5.000 06/01/2022 425538CD5 125 3.34 Hennepin Cnty Minn Sales Tax R N Aa2/AA+ 12/15/2024 3.32 0.066 113.076 1.31 5.000 12/15/2017 79854RAS0 80 1.93 San Luis Ariz Civic Impt Corp
Insurer: SYNCORA N NR/A+ 07/01/2025 1.13 0.009 102.168 3.12 5.000
20 For use with financial advisors and clients in consultation with their financial advisors in one-on-one presentations Please see the end of the proposal for full disclosure.
07/01/2015
Hold Subject to Normal Turnover Hold Until Maturity Subject to Further Review Initial Sell
How many bonds do you own —
and what did you pay for them?
We purchase large, institutional blocks of bonds and allocate them to individual accounts. You can potentially benefit from economies of scale.
Are you subject to the
Alternative Minimum Tax?
Discuss with your tax advisor whether a portfolio that omits AMT bonds would better suit your tax needs.
Do you know what you own?
In 2010, a revised credit rating scale lifted BBB bonds into higher-rated categories. We perform continuous, in-depth research to understand the credit risk of each underlying security.
Are you capitalizing on higher
coupon / premium bonds?
For separately managed accounts, we focus primarily on premium bonds that may return cash flow faster and may be less sensitive to changes in interest rates.
To get started, ask your financial advisor for a Municipal Bond Portfolio Review.
* Source: Nuveen Asset Management. For illustrative purposes only. The Portfolio Transition Analysis provides a preliminary non-binding indication of how Nuveen Asset Management would expect to address holdings contributed to a new account in principal, for informational purposes only.
As you review your portfolio with your financial advisor to discuss investment goals
and asset allocations, consider actively managed municipal options managed by the
Nuveen Asset Management investment team.
Evaluate Solutions
3
Separately
Managed Account
Mutual Fund
Closed-End Fund
Individually managed portfolios tailored to the account holder.
Investors own the securities.
Daily pricing and liquidity with lower investment minimums. Investors own shares of the fund.
Exchange-traded with intra-day pricing determined by the market. Investors own shares of the fund.
Short Term
Limited Maturity
Intermediate Term
Long Term
Short Duration High Yield
High Yield
Total Return
Inflation Protected
AMT-Free
State Specific
State Preference
Laddered Portfolios
Tailored Portfolios
Income may be subject to state and local income taxes. Capital gains, if any, will be subject to capital gains tax.
Separately Managed Accounts, Open-End Mutual Funds and Closed-End Funds are different types of investment vehicles with different expense structures and different inflows/outflows and distribution requirements.
There is no guarantee that any of the strategies will achieve their stated objectives. There are risks inherent in any investment and these risks should be carefully considered before investing.
Nuveen Asset Management, LLC is a registered investment adviser and an affiliate of Nuveen Investments, Inc.
The Funds feature portfolio management by Nuveen Asset Management, a registered investment adviser and an affiliate of Nuveen Securities, LLC. Funds distributed by Nuveen Securities, LLC, a subsidiary of Nuveen Investments, Inc.
Not all products are available at all firms. Please check with your firm for availability.
For more information, contact your financial advisor and visit nuveen.com.
Nuveen Investments
has been navigating
municipal finance and bond markets since 1898
117
years of history and experience
What Makes a Fixed Income Leader?
Nuveen Asset Management
utilizes deep credit research to deliver
global multi-asset class solutions
14
separately managed
account strategies
23
municipal analysts represent one of the
industry’s largest municipal research teams
34
national and state municipal
bond mutual funds
13
credit analysts continuously monitor
fundamentals, technicals and valuations
in taxable fixed income markets
10
taxable fixed income
mutual funds
75
municipal and taxable
closed-end funds
Nuveen Asset Management has the second largest market share in
municipal bond separately managed accounts.
3Nuveen Investments, Inc. was founded in 1898. Nuveen Asset Management, LLC was established in 1989.
3 Source: Money Management Institute Industry Guide to Managed Investment Solutions, 2014-2015.
A WORD ON RISK
Investing in municipal bonds and a municipal bond investment vehicle involves risks such
as interest rate risk, credit risk and market risk, including the possible loss of principal. The
value of the portfolio will fluctuate based on the value of the underlying securities.
In addition, the callability of bonds may increase interest rate risk exposure in the
Laddered portfolios. Upon call, a client may be confronted with a less favorable interest
rate environment than the one that existed when the original bond was purchased.
Investors should contact a tax advisor regarding the suitability 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. Nuveen Asset
Management is not a tax advisor. Consult your professional advisors before making
any tax or investment decisions. This information should not replace a client’s
consultation with a professional advisor regarding their tax situation.
Before investing, carefully consider fund investment objectives, risks, charges
and expenses. For this and other information that should be read carefully,
please request a prospectus or summary prospectus from your financial advisor
or Nuveen Investments at 800.257.8787 or visit nuveen.com.
GLOSSARY
The Alternative Minimum Tax (AMT) was originally enacted to ensure that all taxpayers pay their fair share of the costs of government. Determining if a taxpayer is subject to AMT requires tax liability be calculated twice: first using the regular tax rules and then a second time using the AMT rules. Only if the AMT calculation produces a higher tax liability than the regular tax rules, is a taxpayer subject to the Alternative Minimum Tax.
ADDITIONAL DISCLOSURES
The comments and statements made are based solely upon the opinions of Nuveen Asset Management and the data available at the time of publication, which may change without notice. There is no assurance that any predicted results will actually occur. This brochure is provided for informational purposes only and should not be construed as a recommendation to buy or sell any specific securities and should not be considered investment advice of any kind. Certain information was obtained from third-party sources, which we believe to be reliable, but is not guaranteed. Nuveen Asset Management seeks to expeditiously and efficiently effect sales of legacy securities contributed to new or existing accounts or in connection with termination and liquidation instructions, generally by directing the execution of sale to the relevant broker-dealer/custodian designated by
the client’s managed account program, subject to program limitations. Primarily due to the time constraints and lot sizes applicable to these transactions, and because the full range of trading techniques is generally not available (including aggregation), the prices received in these transactions may be less favorable than the prices that could be attained for sales of securities selected by Nuveen as part of ongoing management. Clients always reserve the right to fund accounts with cash as opposed to legacy securities and to keep any securities in their accounts if terminating Nuveen’s services. Nuveen Asset Management Research conducted a study of daily municipal bond trades to calculate esti-mated spreads for fixed coupon municipal securities. Each file was sorted by CUSIP to find multiple trades on a given day. For each CUSIP that appeared multiple times in one day, the algorithm searched to see if both a sale to a customer and a purchase from a customer occurred on that day. If there were multiple sales and purchases on a given day, the average was taken for each category. The estimated spreads were cal-culated for each CUSIP by subtracting the average purchase price from the average sale price of the CUSIP. Transactions between dealers were excluded. Spreads for some security-days appeared too large or small to be anything but data errors, so we sorted security days by the size of the spread and deleted observations with the largest and smallest 0.5% of spreads. Institutional size trades were separated from the retail trades and the median spread was taken by category ($25K or Less, $25K - $100K, $100k - $1M, and Over $1M). For example, the $25,000 or less dataset contains all instances where there was at least one customer purchase of principal amount of $25,000 or less and at least one customer sale of principal amount of $25,000 or less on the same day in the same security. Negative spreads (average purchase price greater than the average sale price from the customer) and zero spreads were excluded from the calculation.
PORTFOLIO REVIEW REPORT/PORTFOLIO TRANSITION ANALYSIS
The report summarizes certain information regarding a prospective client’s pre-existing holdings based on data provided by the prospect and/or its financial advisor and third party sources. The holdings and characteristics of an actual account managed by Nuveen Asset Management may vary materially from the prospect’s current holdings. This report is for discussion purposes only and is not a recommendation to buy or sell any securities or a particular investment strategy.
The Portfolio Transition Analysis does not reflect, establish or evidence an advisory or fiduciary relationship between Nuveen Asset Management and the prospect; is not based on the financial status, investment objectives, tax situation, or needs of a specific client; and is not and should not be relied upon as investment advice that should be independently relied upon by the prospect or their financial advisor. An advisory or fiduciary relationship between Nuveen Asset Management and the prospect requires the execution of an investment advisory agreement. Nuveen Asset Management reserves the right to take actions that differ from the analysis based on its then-current investment advice, market conditions, and client-specific information.
The bond prices listed in this review are based on institutional evaluations and are not actual bids on the existing bonds. Institutional trade execution applies primarily to municipal bond trading as part of ongoing account management and generally does not include sales of legacy securities contributed to new or existing accounts or in connection with termination and liquidation instructions. When liquidated, bond blocks may receive less than the prices listed. Bonds are also subject to liquidity condi-tions and market fluctuacondi-tions resulting in prices that may adjust accordingly.
Nuveen Investments Advisers Inc. (“NIA”), a registered investment adviser, provides Managed Account marketing services for its affiliates that are registered investment advisers, including Nuveen Asset Management, LLC. All such affiliates are also affiliates of Nuveen Investments, Inc.
For more information, contact your financial advisor and visit nuveen.com.
15 D 89 11 -I NV -Y -0 2/ 16Follow @NuveenInv
on Twitter
Get the Nuveen Investments
iPad app
What Differentiates Nuveen Investments?
Industry Leadership
Since 1898
John Nuveen built a firm with
brick and mortar stability—
a steadfast presence in
changing markets.
Focused Expertise from
Independent Affiliates
Nuveen’s multi-affiliate model
delivers excellence across asset
classes through focused teams of
investment experts.
Deep Commitment to
Advisors and Investors
Our goal is simple: to deliver
lasting value by aligning
outstanding people and relevant
insights with each relationship.
