In the third quarter of 2025, the Franklin Federal Intermediate-Term Tax-Free Income Fund exhibited a remarkable performance, surpassing its benchmark, the Bloomberg Municipal 1-15 Year Index. This achievement was largely attributed to the fund's strategic yield curve positioning and astute rating allocations. The market observed a significant increase in municipal bond issuance, offering investors compelling opportunities to secure high yields.
Franklin Federal Intermediate-Term Tax-Free Income Fund's Q3 2025 Performance Breakdown
During the third quarter of 2025, the Franklin Federal Intermediate-Term Tax-Free Income Fund demonstrated exceptional performance, outpacing its benchmark, the Bloomberg Municipal 1-15 Year Index. This strong showing was a result of several key factors. The fund's strategic decision to overweight municipal bonds with maturities of 20 years or more proved highly beneficial, contributing significantly to its relative outperformance. Additionally, the fund's rating allocations played a crucial role, with an overweight in A-rated bonds and an underweight in AAA-rated bonds positively impacting returns.
The municipal bond market experienced a notable surge in new issuance during Q3 2025, surpassing historical averages. This increase was driven by a substantial 34% year-over-year jump in July issuance. Issuers, who had previously hesitated to enter the market due to uncertainties surrounding their tax-exempt status, capitalized on the improved conditions. This influx of new bonds, combined with yields near multi-year highs, created an attractive environment for investors seeking to lock in substantial income streams. These market dynamics and the fund's proactive management contributed to its strong quarterly results.
The robust performance of the Franklin Federal Intermediate-Term Tax-Free Income Fund in Q3 2025 underscores the importance of a well-calibrated investment strategy, particularly in a dynamic market environment. The fund's success highlights how strategic positioning in longer-duration bonds and carefully chosen rating allocations can drive superior returns. For investors, the current landscape of high municipal bond yields presents a compelling opportunity to enhance portfolio income, reinforcing the value of expert fund management in navigating market complexities and capitalizing on favorable conditions.