Perspectives Blog

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

…bankruptcy filing this summer, contributed to investors’ concerns about other weak municipal issuers. Puerto Rico’s financial problems have been simmering for decades. The Commonwealth has an ailing economy, recurring budget deficits and severely underfunded pension systems. Unlike most other municipalities, PR issues debt to pay annual operating expenses. The chart on the following page provides a snapshot of Puerto Rico’s unrestricted net asse…

Puerto Rico’s turbulent ride

Michael Taylor, Senior Municipal Analyst | September 26, 2013

…ns, both unusual for state-equivalent obligors and a clear sign of underlying credit weakness. The Commonwealth’s long-delayed fiscal 2012 audited financial statements, released on September 16, reveal a modest improvement in deficit spending, though for fiscal year 2014 a sizable budgetary deficit remains. Faced with limited options, the administration plans to rely on deficit borrowing, bank lines of credit and other one-time measures to close…

What’s the outlook for muni bonds?

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

…ive performance was a result of an unexpectedly sharp decline in Treasury yields — likely the product of a combination of factors, including slower first quarter growth, ongoing albeit smaller Fed purchases, a reduced federal deficit requiring less borrowing and attractive relative valuations compared to other bond markets. Apart from the bond friendly decline in rates, municipals enjoyed a confluence of additional factors that helped them outper…

The case for active bond management

Carl Pappo, Head of Core Fixed Income | August 25, 2014

…, investors would have been better off with an underweight to the Treasury sector and overweight investment grade credit. Passive managers have been forced to continue to increase their allocation to Treasuries as the federal deficit swelled and was financed through the issuance of Treasuries. Exhibit 1 Source: Barclays, July 2013 Unlike passive strategies, an active manager’s objective is to outperform the benchmark. They are able to do this by…

Flexible income strategies — Avoiding side effects from the Fed’s medicine

David King, CFA, Senior Portfolio Manager | August 11, 2014

…n investment strategy needs the flexibility to look beyond the most visible asset classes with the most homogeneity and highest correlations. The U.S. economy went into recession in 2008, and it looked serious. As our fiscal deficit piled up, the political appetite for high government spending waned, leaving monetary policy as the primary available weapon to prevent recession from becoming depression. By mid-2011, Treasury bond yields had reache…

Rebalancing the U.S. economy

Marie M. Schofield, CFA, Chief Economist and Senior Portfolio Manager | January 13, 2014

…economy has been weighed down to varying degrees by a huge fiscal drag from earlier year tax hikes that hit households and from spending cuts by federal and state governments. While painful, these cuts have rebalanced budget deficits. A year ago, the U.S. budget deficit was 6.5% of gross domestic product (GDP). It will likely fall to less than 4% of GDP in last year’s fourth quarter and looks to decline to something near 3% this year. Receipts a…

From tactical to core – The case for emerging market debt

Columbia Management, Investment Team | June 2, 2014

…a natural valuation pullback. Higher Treasury yields were the initial catalyst for the correction and led to deteriorating technical factors and investor concerns about the impact of more expensive capital on current account deficit countries. Country-specific volatility in countries such as Venezuela, Ukraine, Turkey and Brazil also contributed to concerns about the sector. 2013 created value in a sector with continued fundamental appeal Last y…