Perspectives Blog

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…

Labor market takes center stage

Zach Pandl, Portfolio Manager and Strategist | October 15, 2013

…Keynesian” mainstream. This is reflected in the types of models she relies on in her analysis as well as her qualitative descriptions of the Fed’s role and objectives. The following quote appeared in a 1995 interview with the Federal Reserve Bank of Minneapolis, shortly after Yellen joined the Board: “I would agree that the Fed probably cannot achieve permanent gains in the level of employment by living with higher inflation. But the Federal Rese…

When do floating rate loans begin to float?

Columbia Management, Investment Team | July 11, 2013

…e low by establishing a minimum level under which the base rate cannot fall. This feature became a fixture in the floating rate market during the Financial Crisis as the ultra-low interest rate environment took hold. When the Federal Reserve anchored short-term interest rates near zero, LIBOR fell in lock-step and bank loan issuers were forced to identify a new way to entice investors to assume their debt. The introduction of LIBOR floors enhance…

The Fed’s outlook and leadership in flux

Zach Pandl, Portfolio Manager and Strategist | August 1, 2013

…upcoming FOMC meeting, we think a likely outcome would be emphasis that the QE tapering decision will depend on the incoming data, including news on both growth and inflation. Many observers blamed a lack of clarity from the Federal Reserve (the Fed) for the sharp increase in interest rates after the initial signals about tapering. As a result, in recent weeks Fed officials have tried to calm nerves by stressing that the decision to slow the pac…

Compelling opportunity in municipal bonds

Catherine Stienstra, Senior Portfolio Manager | November 7, 2013

…pal/Treasury yield ratios indicate municipal bonds are cheaper vs. Treasuries on a relative basis. Municipal bonds are one of the remaining investments that allow investors to shelter their income from taxes. With the highest federal tax rate at 43.4%, plus state taxes, the savings provided by municipal bonds can be considerable. It is what you keep that is important. Sources: Thomson Municipal Market Data (MMD), Bloomberg BVAL, 09/30/13 **Assu…

Rebalancing the U.S. economy

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

…d normalization. The first is policy normalization—both fiscal and monetary. 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’…

The Fed’s decision tree

Zach Pandl, Portfolio Manager and Strategist | October 8, 2013

…Washington. The economic impact of the shutdown cannot be known for certain, but estimates from economists suggest a drag of about 0.25%-0.50% on annualized fourth quarter gross domestic product (GDP) for every two weeks the federal government remains closed. Needless to say, a debt ceiling crisis could have much more worrisome impacts on the economy if it leads to a missed payment on the government’s debt. If the standoff continues beyond this…