Perspectives Blog

The coming divide in state credit quality

Ty Schoback, Senior Municipal Analyst | June 3, 2014

…verage annual tax revenue growth, largely driven by robust equity market gains that have generated strong capital gains taxes. A number of states have managed such growth with exceptional prudence – states we deem to be fiscal leaders – and are now in the enviable position of debating what to do with newfound budget surpluses. In particular, two states stand out: California, which was being compared to Greece just a few years ago, and…

Puerto Rico’s turbulent ride

Michael Taylor, Senior Municipal Analyst | September 26, 2013

Puerto Rico’s economic contraction and fiscal decline is persistent, well-documented and widely acknowledged within the municipal marketplace. For Puerto Rico, continued access to affordable capital remains imperative for the maintenance of fiscal operations, liquidity, and maintaining investment-grade agency credit ratings. We maintain the opinion that investing in Puerto Rico municipal bonds remains appropriate only for investors who can tole…

Rebalancing the U.S. economy

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

Both fiscal and monetary policy will begin to normalize in 2014 The economy’s performance will be an important metric for markets as growth needs to catch up The key to getting growth beyond 2% is for business to borrow to improve/expand productive capital It’s happening again—a fourth quarter bounce in economic activity that extends into the first quarter and supports the view that growth really, finally, has started to accelerate. Such bounc…

Fear is not a strategy

James Dearborn, Head of Municipal Bonds | November 18, 2013

…elling pressures. While yields look attractive, fear and uncertainty persist. It may take years for the Detroit/PR stories to play out and investors need to know how exposed their portfolios may be. Bankrupt Detroit Detroit’s fiscal erosion has been slow and painful. Decades of financial and economic decline, exacerbated by dysfunctional politics, resulted in the city’s Chapter 9 bankruptcy filing in July. With around 100,000 creditors, including…

U.S. rates – Headwinds

Zach Pandl, Portfolio Manager and Strategist | March 17, 2014

…function) and also affects the size of the output gap (the normal transmission mechanism). However, there are many other things that affect the output gap besides monetary policy. These can include non-financial factors like fiscal policy and oil prices, as well as financial headwinds/tailwinds such as credit standards, household balance sheet stress and capital market regulation (financial headwinds could be thought of as affecting the output g…

FOMC December meeting scouting report

Zach Pandl, Portfolio Manager and Strategist | December 16, 2013

…of its bond purchases: (1) insufficient confirmation of the baseline forecast (i.e. weak data), (2) downside risks from the tightening of financial conditions over the summer and (3) uncertainty around the impact of upcoming fiscal negotiations. We believe Fed officials will have enough confidence on all three points to announce the first slowing of quantitative easing (QE) at this week’s meeting—although we would emphasize that we see this as a…

Puerto Rico’s double-downgrade

Michael Taylor, Senior Municipal Analyst | February 10, 2014

…ealth’s GO rating were also downgraded two notches, with the exception of the Puerto Rico Aqueduct and Sewer Authority (PRASA) Revenue Bonds. The moves were by no means a surprise. Puerto Rico’s economic contraction and fiscal decline has been 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 use of o…