Perspectives Blog

Fixed income strategies – The pros and cons of generating returns with negative duration

Columbia Management, Investment Team | July 14, 2014

…est tactically across sectors and manage interest rate sensitivity. This includes the ability to take a negative duration position. At a time when Fed accommodation is winding down and the fear of rising interest rates is on everyone’s mind, these features sound fairly enticing. But what exactly does it mean to have negative duration? Negative duration: How to get there and what it costs To decrease duration in a portfolio, the investment manager…

Duration for diversification

Columbia Management, Investment Team | November 19, 2013

Many investors struggle to determine the appropriate amount of bond duration in an environment of rising interest rates. The right amount of duration has to be considered in a portfolio context, because the main value of duration exposure comes through diversification. Because of the negative correlation between duration and the returns of riskier assets, high-quality fixed income will still be a cornerstone of any disciplined portfolio. By Za…

From tactical to core – The case for emerging market debt

Columbia Management, Investment Team | June 2, 2014

…compared to other fixed-income sectors in periods of rising interest rates. If we consider empirical or observed duration sensitivities during periods of rising rates, EMD has usually performed as if it had a duration profile closer to 2.7 years (Source: Columbia Management and Barclays, last 10 years as of 3/31/14) as opposed to the 7-year analytical duration figure reported by the index. Over the last 12 months, the volatility of changes in spr…

U.S. rates — View update

Zach Pandl, Portfolio Manager and Strategist | April 4, 2014

Compared to the market consensus, our views have been more negative on three key duration fundamentals. Following recent remarks by Fed Chair Janet Yellen, we are now less confident about how to read Yellen’s policy strategy. We are still expecting higher rates; however, we now have less conviction that 3-5yr Treasuries will continue to underperform on the curve. For the last couple of months we have argued that portfolios should remain underw…

Q4 fixed income outlook — External influences

Gene Tannuzzo, CFA, Senior Portfolio Manager | September 22, 2014

…ing further divergence from their European counterparts. Therefore, we are positioning portfolios with a shorter duration to protect against rising interest rates. In this environment, we think a duration of 2-3 years makes sense in bond portfolios but as always, it is very important which sectors that duration comes from. Secondly, we continue to think that corporate bonds are more attractive than their government counterparts, supported by stro…

Q2 fixed income outlook – Hitting for the cycle

Gene Tannuzzo, CFA, Senior Portfolio Manager | March 31, 2014

…we think intermediate-maturity yields (3-7 year) should rise, and investors should reduce interest rate risk, or duration, in that part of the curve. We expect a flatter yield curve over the next few months as investors focus less on tapering, and more on the timing and pace of rate increases. However, we don’t think investors should avoid duration altogether. While short-term rates will eventually rise, the yield curve is exceptionally steep, an…

What should U.S. bond investors expect in 2014?

Zach Pandl, Portfolio Manager and Strategist | January 6, 2014

The timing of the Fed’s QE exit is no longer the central question An accelerating economy could mean another challenging year for duration risk A major question is whether markets begin to doubt the Fed’s commitment to low rates If bond investors were asked to summarize 2013 in a single word, we suspect that many would pick “taper.” The question of when the Federal Reserve (the Fed) would begin dialing back quantitative easing (QE) dominated m…