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….

The coming divide in state credit quality

Ty Schoback, Senior Municipal Analyst | June 3, 2014

We expect an increased divergence in state credit quality in the coming years, compared with what has been seen over the past two decades. While the overall state sector remains robust, we believe notable credit distinctions are beginning to materialize among several weaker states. Investors should be aware of this divergence and seek to be appropriately compensated for investing in states of varied creditworthiness. State tax revenues typical…

Do you know what’s in your short-term bond fund?

Columbia Management, Investment Team | December 1, 2014

…ective about which high-quality bonds to buy tends to add the most value to yield and total return. To diversify credit risk, it is best to keep corporate bond holdings well-diversified, usually owning less than 1% per name, even with high-quality bonds. It is possible to obtain attractive yields without dipping down into non-investment grade bonds. We especially like bonds that couple high credit quality with attractive yields, and historically,…

From tactical to core – The case for emerging market debt

Columbia Management, Investment Team | June 2, 2014

…articularly when accompanied by low volatility. Given the meager return on cash, investors have been moving into credit in search of additional returns and into asset classes with perceived levels of low volatility. Corporate credit spreads have tightened steadily, in 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 aft…

How will California’s drought affect water utility revenue bonds?

Ty Schoback, Senior Municipal Analyst | November 5, 2014

… California is in its fourth year of drought, one of the worst in the past century.  Key factors when assessing credit quality of water utilities are water supply and source diversity.  Credit strength of California water utilities hinges on political willingness to raise rates.  Potential impact on California-specific and national muni bond funds. California is in the midst of its worst dry spell in the last one hundred years. For most water u…

What’s the outlook for muni bonds?

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

…ts. Illinois, New Jersey and Puerto Rico headlines aside — Vast majority of state and local issuers experiencing credit improvement Although some prominent “bad apples” will try to spoil the whole bunch, we believe that recent negative budget developments in Illinois and New Jersey, as well as ongoing stress in Puerto Rico are more the outliers than the norm in municipal credit quality. For most states and local issuers who have seen tax revenues…

A port in the storm — Short muni funds can offer refuge in the face of rising rates

Catherine Stienstra, Senior Portfolio Manager | October 2, 2014

…curity selection in lower-rated securities. Money market funds are restricted to owning bonds within the highest credit quality categories, with the bulk of assets limited to top tier-rated securities. As a result of the Fed’s Zero Interest Rate Policy (ZIRP), very short, high quality securities have produced virtually no return over the last several years. Conversely, many short muni funds may invest in lower quality investment grade securities…