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Tax-Loss Harvesting With a Credit Perspective

DPC DATA’s Triet Nguyen explains how BondVALU Credit Momentum Scores support credit-aware municipal tax-loss harvesting in his IMTC guest article.

September’s municipal bond selloff created an opportunity for SMA managers to harvest tax losses and reassess portfolio credit quality. With yearend approaching, managers can use this window to review holdings, evaluate replacement securities and address changing credit fundamentals.

In his guest article on IMTC’s website, “A Credit-Aware Approach to Tax Loss Harvesting in Municipals,” Triet Nguyen, DPC DATA’s Vice President of Credit Data & Solutions, examines how managers can pursue both objectives.

Bringing credit trends into the review

Identifying a position with an unrealized loss is one part of the process. Managers also need to understand the underlying credit and how a potential replacement fits the client’s portfolio.

Triet explains how DPC DATA’s BondVALU Credit Momentum Scores help identify obligors with weakening, stable or strengthening financial trends. The sector-specific models draw on DPC DATA’s MuniCREDIT database, covering approximately 30,000 obligors without a size or rating cutoff.

Updated daily to reflect the latest publicly available financial disclosures, the scores help managers prioritize credit reviews. They also provide insight into smaller or infrequent borrowers that may lack agency ratings. Scores apply to the entities responsible for repayment, addressing the distinction between conduit issuers and underlying obligors.

Connecting analysis with portfolio decisions

The article also explores how integrating BondVALU Credit Momentum Scores into IMTC’s platform brings credit analysis into the tax-loss harvesting workflow. In practice, a harvesting decision is rarely just about the loss. A manager has to respect each account’s guardrails, work from the right tax lots, and find replacements that can actually be bought.
On IMTC, those considerations feed into the same optimization engine, with credit momentum weighed alongside strategy-level rules, client customizations, tax lots, and the available inventory and live offers coming through IMTC Live Markets. A weakening credit becomes a factor in which positions get sold and which replacements make sense. Because the Optimizer works across accounts at once, a review that used to mean going through accounts one-by-one can happen on the fly in a few minutes, so harvesting can happen year-round. Managers can also schedule the workflow to run daily, so the potential buys and sells are waiting for them when they start the day. From there, they decide which trades go to the Blotter.
This approach supports a more coordinated review of tax opportunities and credit exposure. It also makes tax-loss harvesting a process managers can consider throughout the year as market conditions and client circumstances change.

For municipal portfolio managers, Triet’s article offers a useful perspective on connecting tax considerations, credit surveillance and portfolio decisions.

Read Triet’s guest article on IMTC’s website.


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