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…

Why pay a premium for municipal bonds?

Columbia Management Municipal Investment Team, | December 18, 2014

…he purchase may seem counter-intuitive, premium bonds can be advantageous due to the high coupon rates and lower durations they provide relative to discount bonds. Higher coupons: The premium cost of the bond is eventually recouped through the higher coupon payments received over the life of the bond. Lower duration: A premium bond has a lower duration due to its higher cash-flows, making it more defensive and less price sensitive to changes in i…

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

Columbia Management, Investment Team | December 1, 2014

…and overweights the longer end of the short space for its higher yield can be beneficial. Being selective about duration and yield curve positioning can help manage the overall interest rate risk. Remember, the composition of a fund’s duration (placement along the maturity spectrum) is just as important as the duration itself. We believe rotating sectors and being selective about which high-quality bonds to buy tends to add the most value to yie…

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…

Interest rates — Farewell, liquidity trap

Zach Pandl, Portfolio Manager and Strategist | December 15, 2014

The U.S. Treasury market as a whole has returned +1% annualized since the end of 2012 (and +0.5% annualized since the low in 10-year yields in July 2012). Because of imminent Fed rate hikes and depressed yield levels, prospective returns look no better today. We recommend investors take profit in long-duration ­fixed-income sectors that benefited from 2014’s decline in rates, and look to other sources of income for their bond portfolios. With…

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…