Perspectives Blog

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 Research | 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 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…

Are municipal bond rating agencies shifting the goalposts (again)?

Columbia Management Municipal Investment Team, | September 30, 2013

In 2010, public ratings agencies upgraded en masse, or “recalibrated,” tens of thousands of municipal bonds without without a formal review of each obligor’s underlying credit characteristics. Recently, Moody’s and S&P announced new revisions to their General Obligation (GO) rating methodologies. S&P’s revision is anticipated to result in an upward migration of their local GO ratings (60% unchanged, 30% upgraded, 10% downgraded), while…

How bad is China’s credit crisis?

Weili Jasmine Huang, Senior Portfolio Manager | February 3, 2014

only about 7% of total banking sector assets. Another shadow banking product is wealth management products issued by banks at Rmb10trn, less than 10% of bank’s total deposit base. • China has only 10% of gross external debt of gross domestic product (GDP), almost the smallest among all emerging countries. That means debts are largely domestically funded, and by adding in all forms of non-loan and off-balance sheet credit, the resulting ban…

A primer on preferred securities

Carl Pappo, Head of Core Fixed Income | March 10, 2014

…including the structures, the motivation of issuers and investors and why we think preferred securities make sense in the current market environment. What is a preferred security? Preferred securities carry attributes of both debt and equity securities. Preferred securities rank higher in the capital structure relative to common equity, as they have a priority claim on dividend payments and a higher claim on assets in a bankruptcy. Preferred secu…