Fixed income investors are currently confronting two major challenges:
- Low yields as interest rates have been at historic lows.
- 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.
- 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.
- 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.
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.
OppenheimerFunds is not undertaking to provide impartial investment advice or to provide advice in a fiduciary capacity.
Mutual funds and exchange traded funds are subject to market risk and volatility. Shares may gain or lose value.
Prior to June 29, 2018, Oppenheimer Short Term Municipal Fund was known as Oppenheimer Rochester® Short Term Municipal Fund.
Prior to June 29, 2018, Oppenheimer Intermediate Term Municipal Fund was known as Oppenheimer Rochester® Intermediate Term Municipal Fund.
Prior to October 15, 2018, Oppenheimer Municipal Fund was known as Oppenheimer Rochester® Minnesota Municipal and, under normal market conditions, invested at least 80% of its net assets (plus borrowings for investment purposes) in Minnesota municipal securities. On October 15, 2018, the Fund changed its investment strategy from a strategy focused on investing in Minnesota municipal securities to a national municipal bond strategy. Past performance, therefore, is not indicative of future results.
A portion of the Fund’s distributions may be subject to tax and may increase taxes for investors subject to Alternative Minimum Tax (AMT). Capital gains distributions are taxable as capital gains. Tax treatments of the Fund’s distributions and capital gains may vary by state; investors should consult a tax advisor to determine if the Fund is appropriate for them.
Fixed income investing entails credit and interest rate risks. When interest rates rise, bond prices generally fall, and the Fund’s share prices can fall. Below-investment-grade (“high yield” or “junk”) bonds are more at risk of default and are subject to liquidity risk. The Fund may invest in the segment of the municipal bond market that is unrated by a Nationally Recognized Statistical Rating Organization (NRSRO). Under certain market conditions, some unrated securities may trade less actively than rated securities. The Fund will not invest more than 15% of its total assets in unrated securities. However, this limitation does not apply to unrated debt that has similar characteristics and is comparable to NRSRO rated debt issued by the same issuer or guaranteed by the same guarantor.
These views represent the opinions of the Portfolio Managers at OppenheimerFunds, Inc. and are not intended as investment advice or to predict or depict the performance of any investment. These views are as of the publication date, and are subject to change based on subsequent developments.