Perspectives Blog

Credit alternatives in government-backed debt

Columbia Management, Investment Team | June 23, 2014

One way investors may boost yields without taking on undue credit risk is through U.S. government agency debt. While many investors associate U.S. agency debt with very low yields, other types of agency debt can offer significant spreads to Treasuries with a modest decline in liquidity. We have been increasing our allocation to the agency market in core portfolios as a way to reduce credit risk while maintaining competitive yields. By Carl W….

From tactical to core – The case for emerging market debt

Columbia Management, Investment Team | June 2, 2014

For many investors, emerging market debt could be viewed as a core-portfolio holding rather than a short-term tactical investment. 2013’s re-pricing created value in terms of higher yields, a more dedicated investor base and a better relative value argument. Flexibility across the full spectrum of EMD investment opportunities is extremely important, as emerging markets are not homogenous. By Patrick McConnell, Director, Fixed Income Product Ma…

Gimme credit

Marie M. Schofield, CFA, Chief Economist and Senior Portfolio Manager | August 22, 2013

es, well north of the 60% historical correlation seen in the prior 25 years. After 1980, consumers’ access to credit was vastly expanded and this fueled consumer spending power well ahead of wage growth. Consumers used credit cards freely, and when these maxed out, used home equity lines of credit to continue their spending spree. Today we are still feeling the effects of deleveraging even though the bulk of the adjustments are behind us. We are…

Trouble in paradise: Q&A about Puerto Rico bonds

Chad Farrington, CFA, Head of Municipal Bond Credit Research and Senior Portfolio Manager | January 2, 2014

Why has Puerto Rico become such an issue now? Should investors be concerned with a downgrade or default? Is Puerto Rico a systemic risk for the municipal market? Historically, Puerto Rico (PR) bonds’ high yield and triple tax exemption (federal, state and local) had been a big lure for many institutional investors, such as mutual funds. PR debt exposure in municipal bond funds, namely single-state municipal bond funds, proved advantageous for sh…

Puerto Rico’s double-downgrade

Michael Taylor, Senior Municipal Analyst | February 10, 2014

What’s behind the downgrade of Puerto Rico’s credit ratings by Standard & Poor’s and Moody’s? The double-downgrade puts pressure on Puerto Rico to shore up its finances in the coming weeks A future default or debt restructuring could rattle investor confidence and impact all municipal market issuers On February 4, Standard & Poor’s lowered its long-term credit rating on the Commonwealth of Puerto Rico’s (PR) general obligat…

Puerto Rico’s credit challenges intensify

Columbia Management Municipal Investment Team, | July 23, 2014

Puerto Rico’s new debt restructuring law led to a Moody’s downgrade. Our assessment of the relative strength of Puerto Rico’s general obligation bonds remains unchanged, as they are not covered by the new law. While we believe that the constitutionality of the new law will be heavily contested, the implications of a voluntary default to revenue bond creditors would be material. In late June, Puerto Rico signed a law that makes it easier…

Puerto Rico’s turbulent ride

Michael Taylor, Senior Municipal Analyst | September 26, 2013

Puerto Rico’s persistently struggling economy and detailing widespread mutual fund exposure to Puerto Rico bonds, spreads widened considerably, with yields on longer-dated triple-tax-exempt Puerto Rico General Obligation (GO) debt trading in excess of 10% (from 7%) at times. Exacerbated by industry-wide mutual fund outflows, and perhaps some forced-selling, 2013 has proven to be the worst year for Puerto Rico bonds in over a decade. According to…