This analysis provides a comprehensive overview of the Thrivent High Income Municipal Bond Fund's activities and outcomes during the third quarter of 2025. The fund demonstrated a notable lead over its benchmark, the Bloomberg 65% High Grade/35% High Yield Index, during this period. A key contributor to this success was the strategic overweighting in longer-dated municipal bonds, which generally performed well, although they experienced underperformance over the preceding twelve months. In contrast, both BBB-rated and high-yield bonds lagged behind their investment-grade counterparts throughout the quarter and the trailing year.
During the third quarter of 2025, the Thrivent High Income Municipal Bond Fund achieved a return of 3.21%, surpassing the Bloomberg 65% High Grade/35% High Yield Index, which returned 2.52%. This represented an outperformance of 69 basis points for the quarter. However, when looking at the trailing 12-month period, the Fund's performance was 96 basis points below the Index. The market observed long-end Treasury rates remaining somewhat stable, especially when compared to the significant fluctuations seen in municipal bond rates.
The investment team's decision to maintain a higher allocation to municipal bonds with longer maturities proved beneficial during the quarter. These bonds delivered stronger returns, contributing positively to the overall fund performance. Conversely, bonds classified as BBB or those within the high-yield category exhibited weaker performance relative to bonds with higher credit ratings. This trend was consistent across both the quarterly and annual performance metrics.
The current market environment, characterized by fluctuating municipal bond rates, has influenced portfolio strategy. The relative stability of long-end Treasury rates suggests a unique dynamic within the broader fixed-income landscape. This stability, or lack thereof, directly impacts the attractiveness and performance of various bond segments within the municipal market.
Looking ahead, expectations for the final quarter of 2025 are optimistic. Industry analysts anticipate a more equilibrium state between the supply and demand for municipal bonds. This projected balance is expected to create a more favorable environment, potentially leading to improved performance for the Thrivent High Income Municipal Bond Fund. The fund's management remains vigilant, adjusting strategies to capitalize on emerging market conditions and mitigate potential risks.
The Thrivent High Income Municipal Bond Fund's third-quarter results underscore the importance of strategic asset allocation and credit quality considerations within the municipal bond market. Despite some segments of the market experiencing headwinds, the fund's targeted approach yielded positive results against its benchmark. The upcoming quarter is poised to offer new opportunities as market forces align, providing a potentially more stable and rewarding investment landscape for municipal bond investors.
