Leveraged Municipal Bond Funds Hit With Losses As Bond Market Falters

Posted on July 7th, 2022 at 3:27 PM
Leveraged Municipal Bond Funds Hit With Losses As Bond Market Falters

From the Desk of Jim Eccleston:

The recent bond rout has led to substantial losses for leveraged municipal bond funds. 

According to Morningstar Direct, high-net-worth clients may be regretting their investments in closed-end municipal mutual funds, which hold about $60 billion in total. In fact, nearly four million U.S. households invest in closed-end funds, according to data from the Investment Company Institute. Nearly half of investors in closed-end funds are retired with a median household income of $135,000. 

While investors are permitted to trade closed-end fund shares, clients are not able to add money to funds or redeem shares for cash as is possible with other open-end mutual funds. Closed-end funds often utilize leverage by borrowing an amount equivalent to about one-third of their value and subsequently investing it. Closed-end municipal mutual funds have lost 15.9% in the first five months of 2022, according to Morningstar Direct. 

The losses primarily can be attributed to recent fixed-income volatility after the Federal Reserve sought to slow inflation by increasing interest rates. In essence, short-term interest rates have drastically increased, which has reduced the amount of money closed-end funds can pay to investors after covering borrowing costs. On the other hand, decreasing bond prices have reduced the funds’ market values due to the existence of newer, higher-yielding debt instruments. 

Eccleston Law LLC represents investors and financial advisors nationwide in securities, employment, regulatory and disciplinary matters.

Tags: eccleston, eccleston law, bonds, bond market

Return to Archive

TESTIMONIALS

Previous
Next

Hiring Eccleston Law has been one of the best career decisions I have made and this "investment" to maintain my sterling regulatory record has been returned many times over.  If you are in a situation where you've been unfairly accused, don't hesitate to talk with Eccleston Law. They are the best.

Thomas C.

LATEST NEWS AND ARTICLES

July 11, 2025
FINRA Advances Proposal to Allow Limited Use of Performance Projections

The Financial Industry Regulatory Authority (“FINRA”) is moving forward with a proposal that would give broker-dealers limited ability to market performance projections and targeted returns under specific conditions.

July 10, 2025
SEC Permanently Bars Brite Advisors USA Over Custody Rule Violations and Undisclosed Conflicts

The SEC has permanently barred Brite Advisors USA from operating as an investment adviser, citing serious custody rule violations and undisclosed conflicts of interest tied to its offshore affiliate, as reported by Financial Advisor News.

July 9, 2025
UBS Confirms Data Breach After Cyberattack on External Vendor

UBS Group AG has confirmed that a cyberattack on one of its third-party suppliers resulted in stolen company information, though no client data was compromised.