Fidelity Rutland Square Trust II N-CSRCertified annual shareholder report (management investment company)

Tax-exempt municipal bonds returned 0.49% for the 12 months ending May 31, 2023, according to the Bloomberg Municipal Bond index. In the first five months of the period, yields on municipal bonds climbed steeply and their prices, which move inversely to yields, declined sharply, as the U.S. Federal Reserve aggressively raised interest rates to combat persistent inflation. From December through April, however, munis charted a choppy course through a rally that was ignited by comments from Fed Chair Powell last November that pointed to a slowdown in the size of future rate hikes, which was followed by growing optimism that the central bank would stop raising rates in the first half of 2023. To date, the central bank has raised its benchmark rate ten times, by a total of 5.0 percentage points, bringing its target range to a level not seen since mid-2007. In the first five months of 2023, bond issuance dropped significantly from previous-year levels, as higher rates suppressed issuers' appetite for new debt, especially given that many states and municipalities still retain unspent COVID-related federal stimulus cash. The reduced supply helped bolster municipal bond gains in January and March. But in April (-0.23%) and May (-0.89%), the index lost ground following turmoil in the U.S. banking sector, and as the continued strength of the labor market surprised analysts and suggested the Fed may need to keep rates higher for longer than the market expected. For the full 12 months, muni tax-backed credit fundamentals remained solid and, for the most part, the risk of credit-rating downgrades of these issuers appeared low. Mid-quality (rated A and AA) and intermediate-duration securities (seven to 15 years) led the way for the year.