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

As a financial advisor with over 20 years of experience, I feel fortunate to call Jim my attorney and friend. He is a fantastic lawyer and trusted advisor. He is skilled in the matters necessary to do the job well. He uses his thoughtful approach and calm demeanor to achieve a positive outcome for the client. If you want to feel confident that nothing will be missed and that you will be represented in a highly professional manner, call Jim Eccleston.

Bill C. and Dan M.

LATEST NEWS AND ARTICLES

October 21, 2025
Judge Denies Merrill Lynch's TRO in Advisor Transition

A federal judge has rejected Merrill Lynch’s request for a temporary restraining order (TRO) against a group of former financial advisors who left the firm to launch their own independent practice, OpenArc Corporate Advisory, under Dynasty Financial Partners’ platform with custody at Charles Schwab.

October 20, 2025
FINRA Accuses Former MML Broker of Cheating on SIE Exam

Regulators have accused a former MML Investors Services-affiliated broker of cheating on the Securities Industry Essentials (SIE) exam, according to a recent Financial Industry Regulatory Authority (FINRA) enforcement complaint.

October 17, 2025
FINRA Fines Oak Hills Securities for Private Placement Misconduct

The Financial Industry Regulatory Authority (FINRA) has censured and fined Oak Hills Securities Inc., an Oklahoma City brokerage, for multiple rule violations over five years.