Tr?id=566623520170033&ev=PageView&noscript=1

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
Quotes Bigger

Thank you for your professional assistance with this matter. You are very good at what you do.

John T.

LATEST NEWS AND ARTICLES

1793034027 Law
October 26, 2026
FINRA Bars Former Wedbush Broker Over $3.5 Million in Complex ETP Losses

The Financial Industry Regulatory Authority (FINRA) barred former Wedbush Securities broker William H.

1792610544 Law
October 21, 2026
FINRA Fines and Suspends Former LPL Broker Over Undisclosed Customer Settlement

The Financial Industry Regulatory Authority (FINRA) fined former LPL Financial broker Gregory W.

1792523173 Law
October 20, 2026
FINRA Orders American Portfolios to Pay $1.6 Million Over Unit Investment Trust Supervision Failures

The Financial Industry Regulatory Authority (FINRA) has ordered American Portfolios, the broker-dealer later absorbed into Osaic, to pay more than $1.6 million in restitution and fines over failures to supervise financial advisors who repeatedly recommended that customers sell unit investment trusts (UITs) before maturity.