Perspectives Blog

Defense industry outlook – Looking past the headlines

Ben Blomberg, Senior Equity Analyst | March 17, 2014

The outlook for U.S. defense contractors has been improving despite all the negative headlines. Army spending is under pressure, but Navy and Air Force spending remain well supported. The recent Ryan-Murray deal is a substantial positive, with a more predictable DoD outlook. Defense investors have had their share of bad news around the trajectory of defense spending, starting with the Budget Control Act of 2011, followed by the failure of the…

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

…Detroit 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 n…

What’s the outlook for muni bonds?

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

…is, 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 climb pas…

The taxman cometh

James Dearborn, Head of Municipal Bonds | March 13, 2014

…kely to cause real pain to taxpayers as they deal with potentially much larger tax bills, even if their income remained stagnant year-over-year. The two major sources of the increased pain emanate from the increase in the top federal income tax bracket from 35.0% to 39.6% and from the new Net Investment Income Tax (NIIT) of 3.8% which was enacted as part of the Affordable Care Act. The NIIT is a particularly unpleasant and unexpected surprise giv…

Puerto Rico’s turbulent ride

Michael Taylor, Senior Municipal Analyst | September 26, 2013

…hallenged Puerto Rico’s economic contraction and fiscal decline is persistent, well-documented and widely acknowledged within the municipal marketplace. Over the past decade the government has routinely employed non-recurring budgetary measures, including the utilization of one-time bond proceeds to fund Commonwealth operations, both unusual for state-equivalent obligors and a clear sign of underlying credit weakness. The Commonwealth’s long-dela…

Rebalancing the U.S. economy

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

…ry. The 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. Rec…

Opportunity in lower-quality municipals

Columbia Management, Investment Team | August 15, 2013

…nds. To earn an approximately 4.10% after-tax (7.25% pretax*) yield, a municipal bond investor may invest in a/an: BBB rated 10-year bond A rated 13-year bond AA rated 19-year bond AAA rated 30-year bond Although the state budget environment generally continues to improve, local governments are expected to continue to face financial headwinds Rigorous analysis, including direct discussions with issuers, is key to successful investing in this s…