This report summarizes the performance and market conditions for the First Eagle Short Duration High Yield Municipal Fund A Shares (without sales charge) during the third quarter of 2025. The fund achieved a return of 0.06% in this period. After facing previous challenges, the municipal bond market experienced a significant recovery, particularly in September, as technical factors began to alleviate. This positive shift was further supported by a slight decline in long US Treasury yields, alongside robust fiscal health among municipalities, which contributed to favorable issuer fundamentals.
The third quarter of 2025 marked a turning point for the municipal bond market. Previously, the market had contended with several technical headwinds that suppressed performance. These pressures, however, started to dissipate, paving the way for a notable rally by the end of the quarter. This renewed momentum underscored the market's resilience and its capacity to adjust to changing dynamics. Investors observed a more optimistic environment as these long-standing obstacles began to clear, allowing for a more accurate reflection of the underlying value of municipal bonds.
A key factor contributing to the positive sentiment in the municipal bond market was the slight easing of long US Treasury yields. Both 10-year and 30-year Treasury rates experienced minor declines, providing a more stable backdrop for fixed-income investments. This stability in the broader interest rate environment helped to bolster investor confidence in municipal bonds, as it reduced concerns about potential yield volatility. The modest decline in Treasury yields made municipal bonds, with their attractive tax-exempt income, even more appealing to investors seeking reliable returns.
Furthermore, the fiscal health of municipalities continued to be a strong supportive factor for the bond market. Entering 2025, many municipalities were in robust financial condition, having managed their budgets effectively and maintained solid revenue bases. This strong fundamental backdrop ensured that issuers remained creditworthy, reducing default risks and enhancing the overall attractiveness of municipal bonds. The consistent strength of issuer fundamentals provided a solid foundation for the market's recovery and sustained investor interest throughout the quarter.
The third quarter of 2025 demonstrated the municipal bond market's ability to navigate and overcome adverse conditions, showcasing its underlying strength through a combination of easing technical pressures, stable long US Treasury yields, and sound municipal fiscal health.