Fixed income investors are currently confronting two major challenges:

  1. Low yields as interest rates have been at historic lows.
  2. Potential volatility as rates rise and negatively impact bond prices.

These challenges have left many investors assuming they only have a choice between two less-than-ideal alternatives: limiting duration risk and focusing on quality at the expense of yields, or pursuing higher yields but taking on duration risk and investing in lower-quality bonds.

Potential Benefits of Oppenheimer Municipal Bonds

We believe there is another option: Our suite of investment-grade municipal bond funds lets investors pursue higher returns on an after-tax basis without assuming more interest rate risk or shifting into lower-quality investments. The portfolios focus on higher-quality bonds and aim to carefully manage risk. These municipal bond funds offer three benefits:

  • Disciplined Risk Management: Investment-grade muni bonds can act as a ballast and provide potential stability for a bond portfolio. We manage risk in two key ways—with the investment universe we select and the risk limits we set.

Selectivity Helps Mitigate Risk

  • Diversified Durations: Bonds with longer durations—generally longer-term bonds—have greater sensitivity to interest rate changes. We manage this risk for investors by having diversified portfolios to choose from across a range of durations.
     

Diversification Across Duration

  • Attractive After-Tax Income Potential: When taxes are taken into account, the equivalent yields on our municipal bond funds can be higher than those on taxable bond funds—a welcome potential benefit in today’s low-yield world.

Attractive Equivalent Yields

The Rationale for Investing Across the Muni Bond Spectrum

A taxable investment typically needs a sizable bump in yield before it can match the after-tax advantages of tax-free municipal bond fund investing. For this reason, it may make sense for taxable investors to consider including municipal bonds in their portfolios.