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

…part due to this demand, resulting in a steady return profile for the asset class. The stresses in the corporate credit markets that were readily apparent during and immediately after the financial crisis have all but disappeared. However, investors now need to look beyond corporate credit for incremental yield, and we believe that emerging market debt (EMD) offers an attractive, high-quality alternative. Emerging market debt is largely investmen…

Half-time report on the U.S. consumer

Marie M. Schofield, CFA, Chief Economist and Senior Portfolio Manager | July 28, 2014

U.S. consumers have taken a more cautious attitude toward debt and been more selective about using it for discretionary purchases. With consumers using credit cards less and using debit cards much more, the supports for higher discretionary spending are keyed off income and wages and also employment. With low debt use and income growth holding back consumption and demand, households will require stronger job growth and real wage gains to accele…

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

…mption (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 shareholders — that is until Puerto Rico debt started trading more in line with its weak fundamental credit characteristics. Since late summer 2013, municipal bonds issued by Puerto Rico have lost more than 20% of their value, with…

Interest rates in a highly indebted economy

Zach Pandl, Portfolio Manager and Strategist | October 13, 2014

…is no fixed cap on the level of interest rates. Any increase in interest rates must be consistent with tolerable debt service ratios, the existing stock of debt and private sector savings. It’s in this context where Fed officials’ delicate approach to the exit process looks most understandable. The deleveraging constraint Last week the Federal Reserve reported that U.S. households’ mortgage debt service ratio—the share of disposable income dedic…

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

…result of this new law, Moody’s downgraded further into junk territory Puerto Rico general obligation and other debt. This three-notch downgrade comes only six months after Puerto Rico was reduced to junk rating status. The passage of the law — Puerto Rico Public Corporation Debt Enforcement and Recovery Act (“Act”) — undermines a long-held belief that the U.S. Territory will take any and all necessary actions to preserve its creditworthiness. A…