Perspectives Blog

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…

Does a perfect policy portfolio exist?

Jeffrey Knight, CFA, Global Head of Investment Solutions and Asset Allocation | May 5, 2014

Risk Parity represents a significant advance in asset allocation, but we don’t believe that there is a single perfect policy portfolio. While Risk Parity works well in neutral markets, we don’t think it is the best policy under bearish, bullish or highly bullish market conditions. We believe that a policy function that rotates among four distinct policy portfolios is closer to perfect than any single policy portfolio. The idea of a policy port…

U.S. rates — Data dependence

Zach Pandl, Portfolio Manager and Strategist | June 23, 2014

Evidence of data dependency at the June FOMC meeting suggests policy will respond to unemployment and inflation surprises. We are more confident the Fed’s reaction function is (nearly) done moving. We therefore remain cautious about exposure to U.S. interest rate risk, especially at the middle of the yield curve. The June FOMC meeting contained a little bit for everyone and interest rates reacted only marginally after the announcements. But lo…

Monetary policy shift creates new investment challenges

Columbia Management, Investment Team | August 6, 2013

Going forward, investors should look for return opportunities that do not depend upon easy money. Diversification strategies must take into account expected high correlations and the vulnerability of “safe” assets to changes in monetary policy The repricing of many assets as the second quarter drew to a close has created an expanded set of attractive investment opportunities. For most of 2013, financial markets have been responding to a nearly…

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…

What investors should know about Fed forward guidance

Zach Pandl, Portfolio Manager and Strategist | March 24, 2014

The Fed’s communication for 2014 looks like the strongest type of forward guidance, one that clarifies the existing policy approach and backs up its statements. Current statements for 2015 and beyond are closer to the weakest type of forward guidance, which means they should be considered less credible. Look for the market’s heavy reliance on Summary of Economic Projections (SEP) forecasts to fade over time. Last week, at Janet Yellen’s first…

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…