BNY Mellon Short-Term Municipal Bond Fund — Q3 2025 Commentary

In Q3 2025 the BNY Mellon Short-Term Municipal Bond Fund produced modest positive returns as short-duration municipal securities benefited from a benign interest-rate backdrop and stable credit conditions. The portfolio continued to prioritize liquidity, high-quality issuers and active credit selection, with average portfolio duration remaining conservative relative to intermediate- and long-duration municipal benchmarks.

Market environment: Municipal yields moved within a narrow band during the quarter as the Federal Reserve signaled a patient stance and inflation indicators cooled. Short-term tax-exempt paper attracted demand from investors seeking yield with lower rate sensitivity, while volatility in longer maturities persisted. Primary issuance was moderate, and state and local credits generally showed resilience amid improving fiscal positions for many issuers.

Portfolio positioning and performance: The fund held a bias toward investment-grade municipal credits and maintained a focus on revenue-backed and essential-service issuers, which supported income stability. Selective exposure to higher-quality, short-term project financings contributed incremental yield without meaningfully increasing credit risk. Security selection, active duration management and ongoing liquidity oversight collectively supported relative performance versus short-maturity municipal indices.

Credit and risk management: Credit fundamentals remained a central focus. The fund’s managers continued to emphasize issuer-level research, stress testing and diversification across states and sectors to mitigate concentration risk. Non-investment-grade exposure was limited and monitored closely; any below-investment-grade holdings were chosen for specific, short-term opportunities and were sized conservatively.

Outlook and strategy: Looking ahead, the team expects short-term municipal yields to remain influenced by macroeconomic data and Fed communications. The fund will retain a defensive duration profile while seeking selective spread opportunities in higher-quality short-term municipals. Management will continue to prioritize liquidity and security-level credit analysis to balance income generation with capital preservation.

Investors should consider the fund’s role for tax-exempt income with limited interest-rate sensitivity. As always, portfolio adjustments will reflect evolving market conditions and the fund’s risk-management framework.