When uncertainty rises, so too does the demand for safety, stability and income. That’s why in periods of market stress, like the one we’re in now, investors often turn to high-quality fixed income, especially municipal bonds. These time-tested instruments offer more than just a place to park capital. They can provide dependable income, diversification and, in the case of munis, powerful tax advantages.
Today’s investment environment is filled with a number of potential pitfalls, including sticky inflation, a recalibrating Federal Reserve, ongoing geopolitical tensions and on-again, off-again tariffs. In moments like these, I believe it’s helpful to look at history as a guide. Fixed income—particularly muni bonds—has long played an important role as a stabilizing force in diversified portfolios.
Why Fixed Income, and Why Now?
For much of the past decade, ultra-low interest rates made it difficult to generate meaningful income from bonds. Investors were pushed out the risk curve and into equities. But that trend could be reversing. With rates at more normalized levels and inflation beginning to ease, fixed income is once again stepping into the spotlight.
I believe municipal bonds are especially compelling in this environment. These instruments, issued by state and local governments, fund essential services like schools, transportation and water systems. Because the interest they pay is often exempt from federal and often state and local income tax, the after-tax yield can be attractive, particularly for high-income earners.
But it's not just about yield. Strong fundamentals matter. Municipal bonds have historically shown low correlation with other asset classes and have demonstrated resilience in past downturns.
One key reason? The fiscal strength of their issuers. As the chart below shows, state and local tax revenues have reached record highs—surpassing $2.1 trillion in 2024, according to Census Bureau data—providing a solid foundation for municipal credit quality. This financial strength, coupled with growing infrastructure investment, makes munis a compelling choice for income-seeking investors in today’s environment.
In Fast-Moving Markets, Active Management Matters
The fixed income landscape is shifting rapidly. That’s why we believe active management is essential in today’s environment. Passive strategies can’t adapt in real-time or capitalize on market dislocations. Investors need a steady hand—managers who can navigate complexity, adjust to changing conditions and stay focused on quality. Two of U.S. Global Investors funds may currently offer relevant opportunities for investors today.
NEARX and UGSDX: Built for Quality and Clarity
The U.s. Global Investors Near-term Tax Free Fund is designed for investors seeking federally tax-free income with low interest rate sensitivity. It invests in high-quality municipal bonds with relatively short maturities, providing an attractive balance of income potential and capital preservation. With a focus on AAA- and AA-rated securities, NEARX has historically provided a smooth ride through rocky markets, making it a potential fit for conservative investors looking to minimize volatility and tax exposure.
Meanwhile, the U.S. Government Securities Ultra-Short Bond Fund (UGSDX) takes a different approach by targeting U.S. Treasury and agency securities with ultra-short durations. In today’s uncertain world, it offers a liquid, low-risk option for investors seeking stability and current income, all without straying far out on the risk curve. UGSDX may be particularly appealing for those stepping out of cash but still looking to preserve capital.
Both funds emphasize credit quality, liquidity and risk management—key attributes when market conditions are in flux.
Choosing the Right Tools for the Job
Economic uncertainty doesn’t appear to be going away any time soon. But that doesn’t mean investors need to sit on the sidelines. Instead, it’s about being smart, staying diversified and choosing the right tools for the job. Fixed income, and muni bonds in particular, can help anchor portfolios and provide steady income, not to mention reduce tax burdens.
In times like these, I believe NEARX and UGSDX offer thoughtful, quality-driven solutions worth considering.
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Holdings may change daily. Holdings are reported as of the most recent quarter-end. The following securities mentioned in the article were held by one or more accounts managed by U.S. Global Investors as of (03/31/2025):