The state of New York issued the first municipal bond in history in 1812 to finance the construction of a canal. More than two centuries later, this market exceeds $4 trillion, with more than 60,000 issuers and a very low default rate. With yields around 5% and strong exposure to infrastructure—most issuances finance public-use assets such as airports, hospitals, water systems, or universities—this asset class remains one of the least covered by international investors, who represent only 3% of the market.
The BNY Mellon US Municipal Infrastructure Debt fund marks nine years since the launch of its UCITS version. Over this period, it has outperformed the US Aggregate index, U.S. corporate debt, and even Treasuries. This performance reflects both the market’s higher structural carry and increased international demand.
Jeffrey Burger, one of the five co-managers of BNY’s municipal bond strategy—a firm with a presence in this market since 1933 and $40 billion under management in this segment—recently visited Spain to explain the potential of this asset class. “The municipal bond market is the primary mechanism for financing infrastructure in the United States, both historically and today,” he notes. It is also a public, transparent, and liquid market that offers “returns and risks typical of fixed income, compared with private credit.”
How does the municipal bond market differ from other U.S. public debt markets?
It is a result of the structure of the U.S. system of government, divided into three levels: federal, state, and local. Below the federal government—which includes Congress, the President, and the Supreme Court—there are 50 states and thousands of local entities, as well as nonprofit institutions such as universities. From its inception, the U.S. model sought to limit the role of the federal government and distribute responsibilities. By design, it does not assume most infrastructure investment.
Why is the private sector less involved in infrastructure in the U.S.?
The country’s size makes it difficult to achieve economies of scale and limits potential returns for the private sector. This is compounded by regulatory differences between states, as well as geographic, climatic, and social factors. In this context, municipal bonds tend to behave like natural monopolies, which contributes to their low default rate. Defaults are exceptional, such as the case of Detroit in 2013.
Why is this asset class under-researched outside the U.S.?
Until 1986, all municipal bonds were tax-exempt for U.S. investors, which reduced their appeal for foreign investors. After that year’s tax reform, some became taxable. The tax treatment depends on how the funds are used: issuances for public services are typically tax-exempt, while those with economic return potential may be taxable. For international investors, this creates an opportunity: bonds with the same credit quality can offer higher yields in their taxable version, with no tax impact for foreign investors.
How do municipal bonds compare with Treasuries?
High federal debt—$38 trillion—has led some investors to seek alternatives within U.S. public debt. In this regard, municipal bonds offer higher spreads, better credit quality, and diversification. Unlike the federal government, states cannot run budget deficits. In addition, municipal bonds primarily finance infrastructure tied to revenue-generating assets, not current spending. Another key difference is amortization: municipal bonds typically repay both interest and principal, whereas federal debt is regularly refinanced. This fiscal discipline reduces default risk. Currently, they offer around 85 basis points of spread (OAS) and, with similar duration to Treasuries, yields comparable to corporate debt with lower credit risk.
What is the bond selection process like?
The team consists of 23 professionals, including 10 analysts specialized in municipal credit. Their objective is to identify relative value, detecting bonds that are undervalued or overvalued based on their fundamentals. This analysis allows them to generate alpha versus the index. The historically low default rate in investment grade reinforces this approach. The team is complemented by five senior managers and a specialized trading group. Exclusive specialization in this segment is one of the main differentiators of the platform.
How is the strategy currently positioned?
The fund maintains a duration of seven years, but with a beta of between 0.65 and 0.70, implying lower volatility than the index. This is partly due to the investor profile, mainly high-net-worth U.S. investors with buy-and-hold strategies, and the presence of call options, which reduce effective duration. The strategy prioritizes revenue bonds, backed by specific income streams from assets such as airports, water systems, or educational institutions, with mechanisms that ensure debt service coverage.
The portfolio has significant exposure to education and healthcare, particularly in high-quality issuances. In higher education, uncertainty around international students has increased yields. In healthcare, reduced subsidies have pressured the sector, creating opportunities in hospitals less dependent on public support, located in higher-income areas or playing an essential role in their communities.
Past performance is not necessarily indicative of future results. The value of investments may fall. Investors may not recover the amount invested.
For Professional Clients only.
For a full list of risks applicable to this fund, please refer to the Prospectus or other offering documents.
Please read the Prospectus and the Key Investor Information Document (KIID/KID) before making any investment decision. Documentation is available in English and in an official language of the jurisdictions in which the Fund is registered for public sale. Visit www.bny.com/es.
The Fund is a sub-fund of BNY Mellon Global Funds, plc (BNYMGF), an open-ended investment company with variable capital (ICVC) with segregated liability between sub-funds, incorporated with limited liability under Irish law and authorized by the Central Bank of Ireland as a UCITS fund. The Management Company is BNY Mellon Fund Management (Luxembourg) S.A. (BNY MFML), regulated by the Commission de Surveillance du Secteur Financier (CSSF). Registered office: 2-4 Rue Eugène Ruppert, L-2453 Luxembourg.
Information on investor rights, including the complaints handling policy and compensation mechanisms, is available at www.bnymellonim.com. The Manager may terminate the arrangements made for the marketing of one or more sub-funds of BNYMGF in one or more EU Member States, with prior notification to shareholders.
In Spain, BNY Mellon Global Funds is registered with the CNMV under number 267.
BNY, BNY Mellon, and Bank of New York Mellon are corporate trademarks of The Bank of New York Mellon Corporation and its affiliates and may be used in reference to its subsidiaries.
