Thornburg Investment Management: Q4 2025 Municipal Bond Funds Commentary
Navigating Municipal Bond Markets: Q4 2025 Insights and 2026 Outlook
Q4 2025 Portfolio Performance: A Detailed Review
Thornburg's diverse municipal portfolios exhibited mixed outcomes in the fourth quarter of 2025. This period saw a flattening of the AAA Municipal curve, leading to gains in shorter-term maturities while longer-term bonds experienced a downturn.
Robust Year-End for Municipal Index and Yield Dynamics
The overall municipal index concluded 2025 on a high note, achieving a total return of 1.56%. This strong performance was primarily fueled by a significant reduction in yields across intermediate and long-duration bonds, with the AAA municipal curve compressing by 10 to 25 basis points.
Sectoral Performance: Revenue Bonds vs. General Obligations
During the quarter, revenue bonds generally underperformed compared to General Obligation (GO) bonds. However, specific sectors such as housing and hospitals demonstrated notable outperformance, reflecting their resilience and favorable market conditions.
Strategic Positioning for Duration: Setting the Stage for 2026
The yield curve's steepening in preceding quarters created an opportune moment to strategically increase duration exposure as 2026 approached, anticipating potential benefits from interest rate movements.
Fixed Income Market Review: Federal Reserve's Influence
The U.S. fixed income markets enjoyed a positive finish to 2025, primarily propelled by expectations surrounding the Federal Reserve's rate decisions, which contributed to widespread gains across the market.