NBB Nuveen Taxable Municipal Income Fund

 

Nuveen Municipal

Closed-End Funds

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NBB Nuveen Taxable Municipal Income Fund

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As permitted by regulations adopted by the Securities and Exchange Commission, paper copies of the Fund’s annual and semi-annual shareholder reports will not be sent to you by mail unless you specifically request paper copies of the reports. Instead, the reports will be made available on the Fund’s website (www.nuveen.com), and you will be notified by mail each time a report is posted and provided with a website link to access the report.

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Annual
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Table of Contents

 

3

Chair’s Letter
to Shareholders

Dear Shareholders,

More than a year has passed since the World Health Organization declared COVID-19 a global pandemic in March 2020: a year of global economic recession, financial market turbulence and some immeasurable losses. A year later the health crisis persists but the widespread distribution of vaccines in the U.S. is enabling us to look forward to what our “new normal” might be. In the meantime, extraordinary economic interventions by governments and central banks around the world are helping to bridge the gap.

With vaccine progress and economic stimulus beginning to provide real benefits to the global economy, markets are anticipating a strong rebound in growth, especially in the U.S. To extend relief programs enacted earlier in the crisis, the U.S. government passed $900 billion in aid to individuals and businesses in late December 2020. Another $1.9 trillion relief package was signed into law in March 2021 providing extended unemployment benefits, direct payments to individuals and families, assistance to state and local municipalities, grants to education and public health, and other support. Additional stimulus proposals are set to be discussed in Congress. The U.S. Federal Reserve, along with other central banks around the world, has pledged to keep monetary conditions accommodative for as long as necessary, as they consider the recent increase in inflation risks as transitory.

While the markets’ longer-term outlook has brightened, we expect intermittent bouts of volatility to continue. COVID-19 cases are still elevated in some regions, as more virulent strains have spread and vaccination rollouts have been uneven around the world. The recovery hinges on controlling the virus, and estimates vary considerably on when economic activity might be fully restored. Achieving sufficient inoculation of the population depends on many variables, including logistics, public confidence, real-world efficacy and the emergence of variant virus strains, as well as whether young children can safely and effectively be vaccinated. In the U.S., the recent slowdown in vaccine demand is prompting a shift from mass distribution to outreach. On the political front, the Biden administration’s full policy agenda and the potential for Congressional gridlock remain to be seen, either of which could cause investment outlooks to shift. Short-term market fluctuations can provide your Fund opportunities to invest in new ideas as well as upgrade existing positioning while providing long-term value for shareholders. For more than 120 years, the careful consideration of risk and reward has guided Nuveen’s focus on delivering long-term results to our shareholders.

If you have concerns about what’s coming next, it can be an opportune time to assess your portfolio. We encourage you to review your time horizon, risk tolerance and investment goals with your financial professional. On behalf of the other members of the Nuveen Fund Board, we look forward to continuing to earn your trust in the months and years ahead.

Terence J. Toth
Chair of the Board
May 24, 2021

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Portfolio Manager’s Comments

Nuveen Taxable Municipal Income Fund (NBB)

The Fund features portfolio management by Nuveen Asset Management, LLC (NAM), an affiliate of Nuveen Fund Advisors, LLC, the Fund’s investment adviser. Portfolio manager Daniel J. Close, CFA, discusses U.S. economic and market conditions, key investment strategies and the twelve-month performance of the Nuveen Taxable Municipal Income Fund (NBB). Dan has managed NBB since its inception in April 2010.

What factors affected the U.S. economy and the national municipal market during the twelve-month reporting period ended March 31, 2021?

The U.S. economy rebounded more quickly than expected from the deep downturn caused by the COVID-19 crisis and containment measures, but gross domestic product (GDP) shrank 3.5% in 2020 overall compared to 2019’s annual level. After falling into a deep recession in February 2020 due to the restrictions on business and social activity to mitigate the COVID-19 spread, the economy bounced back with the help of government stimulus aiding individuals and businesses, accommodative monetary policy that kept borrowing costs low, gradual reopening of businesses and vaccine rollouts. U.S. GDP growth picked up pace in the first quarter of 2021, growing at an annualized rate of 6.4% according to the Bureau of Economic Analysis “advance” estimate, an increase from 4.3% (annualized) in the fourth quarter of 2020. GDP measures the value of goods and services produced by the nation’s economy less the value of the goods and services used up in production, adjusted for price changes.

Although, consumer spending, the largest driver of the economy, remained resilient despite the disruption caused by the health and economic crisis, it declined significantly as unemployment rose sharply starting in March 2020. These measures rebounded markedly in the second half of 2020, although the momentum slowed toward the end of 2020 amid a resurgence of COVID-19 infections. As of March 2021, slightly more than half of the 22 million jobs lost in March and April 2020 have been recovered resulting in an unemployment rate of 6.0% in March 2021 as reported by the Bureau of Labor Statistics, up from 4.4% in March 2020. The average hourly earnings rate increased, growing at an annualized rate of 4.2% in March 2021, despite the spike in unemployment. Earnings data was skewed by the concentration of job losses in lower-wage work, which effectively eliminated most of the low-wage data, resulting in an average of mostly higher numbers. The overall trend of inflation accelerated, largely due to rising energy prices and the improving economy. The higher annual inflation rate in March 2021 is also the result of the comparison from a year ago, when consumer prices fell sharply as the first lockdowns were imposed in March 2020. The Bureau of Labor Statistics said the Consumer Price Index (CPI) increased 2.6% over the twelve-month reporting period ended March 31, 2021, before seasonal adjustment.

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Refer to the Glossary of Terms Used in this Report for further definition of the terms used within this section.

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Portfolio Manager’s Comments (continued)

With the onset of the COVID-19 crisis, the Federal Reserve (Fed) enacted an array of emergency measures in March 2020 to stabilize the financial system and support the markets, including cutting its main interest rate to near zero, offering lending programs to aid small and large companies and allowing unlimited bond purchases, known as quantitative easing. In August 2020, the Fed announced a change in its inflation targeting policy, moving from a program of absolute targeting to an average inflation targeting policy. Under this regime, the Fed will tolerate the inflation rate temporarily overshooting the target rate to offset periods of below-target inflation, so that inflation averages a 2% target rate over time. Fed officials remained cautious, acknowledging the economy’s significant improvement from the COVID-19 crisis recession but also expressing concerns about near-term weakness, and left monetary policy unchanged over the remainder of their meetings in 2020 and early 2021.

The federal government also intervened with historic relief measures, starting with three aid packages in March and April 2020. These included $2 trillion allocated across direct payments to individuals, an expansion of unemployment insurance, loans to large and small businesses, funding to hospitals and health agencies and support to state and local governments, and more than $100 billion in funding to employers offering paid leave. In December 2020, the government enacted a $900 billion relief package extending some of these programs, and followed in March 2021 with another $1.9 trillion deal providing support to individuals and families, small businesses, state and local governments, education and public health/vaccination. The Biden administration has proposed another $2 trillion stimulus plan focused on infrastructure and jobs. However, the plan is expected to face legislative hurdles.

The COVID-19 crisis rapidly dwarfed all other market concerns starting in late February 2020. Equity and commodity markets sold off and safe-haven assets rallied in March 2020 as countries initiated quarantines, restricted travel and shuttered factories and businesses. The potential economic shock was particularly difficult to assess at the time, which amplified market volatility. An ill-timed oil price war between the Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC member Russia, which caused oil prices to plunge in March 2020, exacerbated the market sell-off. At year end, the announcement of high efficacy rates in several COVID-19 vaccine trials, followed by regulatory authorizations and public vaccination drives across Western countries, improved the outlook for 2021 and led to risk-on sentiment in the markets. However, market volatility picked up in early 2021, as a stronger economic outlook and improving vaccination rates led to rising inflation concerns and an increase in long-term interest rates.

Geopolitical uncertainty remained elevated during 2020 in anticipation of the U.S. presidential election in November 2020 and the Brexit transition period set to expire in December 2020. However, political risks began to ease with the election of President Joe Biden and a final deal struck between the European Union and U.K. before the end of the transition period. Although China and the U.S. signed a “phase one” trade deal in January 2020, tensions continued to flare over other trade and technology/security issues, Hong Kong’s sovereignty and the management of the COVID-19 crisis.

The U.S. Treasury yield curve steepened over this reporting period, initially driven by a pronounced drop in yields at the short end of the curve. Then a new steepening cycle began in early 2021 as markets priced in a stronger economic recovery and higher inflation, fueled by increasing vaccination rates and more federal stimulus, which drove longer-term interest rates higher.

Municipal bond gross issuance nationwide remained strong in the reporting period, with deals postponed rather than canceled during the COVID-19 crisis driven sell-off. The overall low level of interest rates has encouraged issuers to continue to actively refund their outstanding debt. In these transactions the issuers are issuing new bonds and taking the bond proceeds and redeeming (calling) old bonds. These refunding transactions have ranged from 30% to 60% of total issuance over the past few years. Thus, the net issuance (all bonds issued less bonds redeemed) is actually much lower than the gross issuance. This lower net issuance was an overall positive technical factor on municipal bond investment performance in recent years. Notably, taxable municipal bond issuance has increased meaningfully since the advent of the Tax Cut and Jobs Act of 2017, which prohibits municipal issuers from issuing new tax-exempt bonds to pre-refund existing tax-exempt bonds. However, municipalities have taken advantage of the low interest rate environment and the strong demand for yield to issue taxable municipal debt, enabling them to save on net interest costs while adding to the scarcity value of tax-exempt issues.

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While municipal bond funds suffered significant outflows in March 2020, particularly from high yield municipal bond funds, fund flows rebounded strongly over the remainder of 2020 and sustained a robust pace through early 2021. Demand has been resilient even though municipal defaults, as expected, have increased somewhat during the COVID-19 crisis. However, default activity has occurred mainly in sectors with greater COVID-19 risk exposure, such as senior living, corporate-backed and real estate-backed. Moreover, while there are some pockets of municipal credit ratings stress, a wave of downgrades has not materialized. With interest rates in the U.S. and globally still near all-time lows, even after the recent increase in long-term rates, the appetite for yield has continued to drive investors toward higher after-tax yielding assets, including U.S. municipal bonds. Additionally, as tax payers have adjusted to the 2017 tax law, which caps the state and local tax (SALT) deduction for individuals, there has been increased demand for tax-exempt municipal bonds, especially in states with high income taxes and/or property taxes.

What key strategies were used to manage NBB during the twelve-month reporting period ended March 31, 2021?

The Fund’s primary investment objective to provide current income through investments in taxable municipal securities. The Fund’s secondary investment objective is to seek enhanced portfolio value and total return. The Fund seeks to achieve its investment objectives by investing primarily in a diversified portfolio of taxable municipal securities, which make up approximately 80% of its managed assets. Under normal circumstances, the Fund may invest 20% of its managed assets in securities other than taxable municipal securities including tax-exempt municipal securities, U.S. Treasury and other U.S. government agency securities. At least 80% of the Fund’s managed assets will be invested in securities that are investment grade quality at the time of purchase, as rated by at least one independent rating agency or judged to be of comparable quality by NAM. In addition, the Fund will use an integrated leverage and hedging strategy so that the Fund has the potential to enhance income and risk-adjusted total return over time. The Fund may employ leverage instruments such as bank borrowings, including loans from certain financial institutions, and portfolio investments that have the economic effect of leverage, including inverse floating rate securities.

The twelve-month reporting period was bookended by challenging conditions in the municipal bond market, with the advent of the COVID-19 crisis just prior to the start of the reporting period and a sudden increase in long-term interest rates late in the reporting period. The health and economic crisis and the anticipated recovery from the COVID-19 crisis recession contributed to elevated interest rate volatility and considerable swings in municipal market valuations during this reporting period. Municipal yields ended the reporting period lower than where they began and credit spreads largely recovered from the dramatic widening seen at the peak of the market sell-off in March-April 2020. The U.S. Treasury yield curve steepened over the reporting period as a whole, with the market pricing in the prospects for a strengthening economic recovery aided by massive fiscal stimulus, accommodative monetary policy and vaccination progress. The taxable municipal market, which tracks the Treasury yield curve, posted gains in this reporting period.

The Fund continued to invest according to its expanded mandate (following the elimination of the contingent term in November 2018), which provides the flexibility to seek higher yielding bonds. The Fund’s perpetual strategy affords us the time horizon to see credit situations develop. Additionally, given the smaller volume of buyers in the taxable municipal market compared to the tax exempt market, our deep credit analysis can take advantage of overlooked areas of the market to source attractively undervalued credit stories. Issuance in the taxable municipal market has accelerated over the past year as municipal issuers, which are prohibited from issuing new tax-exempt bonds to pre-refund existing tax-exempt bonds, have taken advantage of the low interest rate environment and the strong demand for yield to issue taxable municipal debt.

The Fund was an active buyer during the reporting period. Municipal bond prices were significantly dislocated from fundamentals, especially among lower rated, higher yielding bonds, which provided an attractive entry point for investments that were likely to enhance the Fund’s income distribution capability, portfolio value and total return over time. The increase in taxable municipal issuance has been an overall positive development for NBB, with a notable increase in small deals coming to market in 2021 that offered more attractive credit spreads. In this reporting period, the Fund continued to seek bonds that were out of favor at the time of purchase but had the potential to rebound as the economy reopens. New purchases were funded with the proceeds from called and maturing bonds, the selective sale of higher grade, lower yielding paper, cash from the use of reverse repurchase agreements

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Portfolio Manager’s Comments (continued)

(part of the Fund’s leverage strategy) and the opportunistic sale of two credits. As the Fund reached its 10-year mark in 2020, callable structures started to mature, providing ample cash to reinvest. As a closed-end fund, NBB did not need to sell positions to meet investor redemptions, allowing the Fund to continue investing to pursue its investment objectives.

During the reporting period, mid to lower investment grade (A and BBB rated) and below investment grade bonds continued to trade relatively cheaply in the marketplace. The bonds added to the Fund were primarily rated BBB and below, including below investment grade and non-rated credits, in both the new issue and secondary markets across a diverse group of sectors. In addition to the bonds discussed in the September 30, 2020 semiannual report, the bonds NBB bought in the second half of the reporting period included tax increment (Memphis-Shelby County Industrial Development Board Graceland Project), transportation other (two car rental facilities and the New York Metropolitan Transit Authority), dedicated tax (Washington State Convention Center and Chicago Transit Authority), tax specialty (Chino Public Financing Authority in California), tobacco (West Virginia Tobacco Settlement), utility (Municipal Electric Authority of Georgia), housing other (California Municipal Finance Authority for Windsor Mobile Country Club), other revenue (California Infrastructure & Economic Development Bank Gladstone Institutes), local appropriation (Cincinnati City School District), and health care (Westchester County Healthcare and Tarrant County Cultural Education Facilities).

How did NBB perform during the twelve-month reporting period ended March 31, 2021?

The table in NBB’s Performance Overview and Holding Summaries section of this report provides total returns at net asset value (NAV) for the period ended March 31, 2021. The Fund’s total returns at NAV are compared with the performance of its corresponding market index.

For the twelve months ended March 31, 2021, the total return on common share NAV for NBB outperformed the return for the Bloomberg Barclays Taxable Municipal Long Bond Index.

As part of its approach to investing, the Fund uses an integrated leverage and hedging strategy in an effort to enhance current income and total return, while working to maintain a level of interest rate risk similar to that of the Bloomberg Barclays Taxable Municipal Long Bond Index. As part of this integrated strategy, NBB used inverse floating rate securities, also known as inverse floaters or tender option bonds (TOBs) and reverse repurchase agreements (known as reverse repos) as leverage to potentially magnify performance. During this reporting period, the Fund used interest rate swaps to reduce its leverage-adjusted duration to a level close to that of the Bloomberg Barclays Taxable Municipal Long Bond Index. In addition, the Fund entered into staggered interest rate swaps to partially fix the interest cost of leverage. During this reporting period, the inverse floaters and interest rate swaps performed as expected and contributed positively to the Fund’s performance, although the performance was somewhat counterintuitive. Due to the path of interest rates and credit spread contraction during this reporting period, the use of both inverse floaters (which have long duration profiles and benefited mostly from the low interest rate environment in 2020) and duration-shortening swaps (which benefited from the meaningful increase in rates in early 2021) contributed positively to performance. Leverage is discussed in more detail later in this report. The Fund also managed the duration of its portfolio by shorting interest rate futures contracts, which had a positive impact on performance during the reporting period. The Fund uses these strategies to help manage the portfolio’s duration and enhance income, along with the allocation of bonds by effective duration.

Generally speaking, longer duration bonds outperformed and shorter duration bonds underperformed during the reporting period. The Fund’s overweight to the 6- to 8-year duration segment, which was the best performing segment, was advantageous, although it was partially offset by an overweight to durations of zero to 2 years, which detracted. In aggregate, this positioning added modestly to the Fund’s relative performance.

The Fund’s credit quality positioning was a strong positive contributor to relative performance. The Fund was well positioned to take advantage of the recovery in credit spreads as the Fund continued to invest in out-of-favor names that we believed would be resilient over the longer term. During the reporting period, bonds rated BBB and below were the best performing areas of the market, while

8

 

high quality (AAA and AA rated) and medium quality (A rated) lagged. The Fund’s overweight allocations to BBB, BB and B rated credit added meaningfully to performance, as did the Fund’s underweight to AAA and AA rated paper, to a lesser extent.

Individual credit selection also contributed to relative outperformance. The top contributors were predominantly long duration bonds with a credit component (i.e., BBB or A rated). Tender option bonds, with their long duration profiles, also added value, as did the futures and swaps positions, as explained in the discussion of the Fund’s integrated leverage and hedging strategy.

Sector positioning, however, was less favorable during the reporting period. The Fund has been systematically underweight to state and local general obligation (GO) bonds and these bonds outperformed during the reporting period. Additionally, the Fund’s overweight to appropriation debt, a sector that underperformed, detracted from relative performance.

9

 

Fund Leverage

IMPACT OF THE FUND’S LEVERAGE STRATEGY ON PERFORMANCE

One important factor impacting the returns of the Fund’s common shares relative to its comparative benchmark was the Fund’s use of leverage through reverse repurchase agreements and investments in inverse floating rate securities, which represent leveraged investments in underlying bonds. The Fund uses leverage because our research has shown that, over time, leveraging provides opportunities for additional income. The opportunity arises when short-term rates that a Fund pays on its leveraging instruments are lower than the interest the Fund earns on its portfolio of long-term bonds that it has bought with the proceeds of that leverage. This has been particularly true in the recent market environment where short-term rates have been low by historical standards.

However, use of leverage can expose Fund common shares to additional price volatility. When the Fund uses leverage, the Fund’s common shares will experience a greater increase in their net asset value if the municipal bonds acquired through the use of leverage increase in value, but will also experience a correspondingly larger decline in their net asset value if the bonds acquired through leverage decline in value. All this will make the shares’ total return performance more variable, over time.

In addition, common share income in levered funds will typically decrease in comparison to unlevered funds when short-term interest rates increase and increase when short-term interest rates decrease. In recent quarters, fund leverage expenses have generally tracked the overall movement of short-term tax-exempt interest rates. While fund leverage expenses are somewhat higher than their all-time lows, leverage nevertheless continues to provide the opportunity for incremental common share income, particularly over longer-term periods.

The Fund’s use of leverage had a positive impact on total return performance during this reporting period.

As of March 31, 2021, the Fund’s percentages of leverage are as shown in the accompanying table.

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Refer to Notes to Financial Statements, Note 9 - Fund Leverage for further details.

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