Perspectives Blog

What’s the outlook for muni bonds?

James Dearborn, Head of Municipal Bonds | June 19, 2014

…tax-free muni yield by an investor’s tax rate, putting it on an equal footing with a taxable security, such as a corporate bond. The results are pretty clear. The stated yield of the broad municipal bond index — which includes only investment-grade bonds — far outstrips Treasuries and investment-grade corporates and comes close to matching the yield on junk-rated corporate debt. On a taxable-equivalent yield basis — adjusted for taxes — the story…

The perils and pitfalls of buying individual municipal bonds

James Dearborn, Head of Municipal Bonds | February 27, 2014

…er prices Deck is stacked against retail investors With an increasing focus on the benefits of owning municipal bonds — attractive after-tax yields, low historical default rates and relatively low volatility — investors are again considering purchasing individual muni bonds. But the deck may be stacked against the retail investor. The allure of owning individual bonds is found in the set interest payment schedule, the defined maturity date and t…

2015 Outlook — Same song, slightly different arrangement

Jeffrey Knight, CFA, Global Head of Investment Solutions and Asset Allocation | December 15, 2014

…rates near zero and government bond yields around the world at historic lows, the comparison between stocks and bonds based on forward-looking expected returns has been very lopsided. Market returns in 2014 underscore the valuation advantage that equities offer. (Exhibit 1) Exhibit 1: In 2014, equities outperformed bonds again For this comparison, we use global returns to represent equities but only U.S. returns to represent bonds. This is an u…

Asset allocation — Where does fixed income fit it?

Columbia Management Global Asset Allocation Team, | August 25, 2014

…nd yields relative to G7 bond yields of similar maturity As of June 30, 2014 We remain overweight in high-yield bonds but valuation analysis suggests that returns are likely to be modest going forward, driven primarily by coupon income rather than further spread tightening. Spreads on high-yield bonds are approaching historical lows, but strong corporate fundamentals, favorable financial conditions and technical factors such as high demand for h…

The taxman cometh

James Dearborn, Head of Municipal Bonds | March 13, 2014

…nvestment to be equal with a tax-free municipal bond — after paying taxes — she will realize how attractive muni bonds are. In Exhibit 1, we compare municipal yields, adjusted for the benefit of the tax-exemption, to other fixed-income instruments. The taxable-equivalent yield of investment-grade municipal bonds easily outpaces Treasuries and investment-grade corporates and rivals corporate high-yield bonds while high-quality municipal bonds are…

Gut check: The outlook on fixed income

Colin J. Lundgren, CFA, Head of U.S. Fixed Income | February 24, 2014

…generate coupon-like returns, which is better than last year but nothing to brag about. Do we prefer high-yield bonds or bank loans? High-yield bonds. High-yield bonds and bank loans were the only two winning sectors in fixed income in 2013 with returns of 7% and 5%, respectively. We are comfortable holding our current positions in high yield and bank loans, but not adding. Corporate fundamentals remain strong, which is supportive of both asset…

Sizing up the fixed income market

Colin J. Lundgren, CFA, Head of U.S. Fixed Income | September 29, 2014

…he end of 2015, 2.88% by the end of 2016 and a “neutral level” of 3.75% by the end of 2017. But while government bonds appear mostly unattractive, corporate bonds still offer reasonable yield premiums with attractive credit fundamentals, moderate risk profiles and historically low default rates. Moreover, corporate bonds are an excellent sector for right sized, research driven firms to uncover value, assess risk and add value to client portfolios…