Perspectives Blog

Gimme credit

Marie M. Schofield, CFA, Chief Economist and Senior Portfolio Manager | August 22, 2013

Economic data seem largely unchanged from past trends, despite uptick in retail sales. Consumers continued to pare their debt last quarter continuing a nearly five-year trend. Given consumer deleveraging, consumption remains tethered to income gains – and those gains remain sub-par. Last week’s economic data give a very mixed picture of the health of the consumer. While the market seemed to cheer the uptick in spending seen in retail sales rep…

Trouble in paradise: Q&A about Puerto Rico bonds

Chad Farrington, CFA, Head of Municipal Bond Research | January 2, 2014

Why has Puerto Rico become such an issue now? Should investors be concerned with a downgrade or default? Is Puerto Rico a systemic risk for the municipal market? Historically, Puerto Rico (PR) bonds’ high yield and triple tax exemption (federal, state and local) had been a big lure for many institutional investors, such as mutual funds. PR debt exposure in municipal bond funds, namely single-state municipal bond funds, proved advantageous for sh…

The role of income inequality

March 3, 2014

e global financial crisis. Most studies now point to the lack of income growth for the bottom 95% of the income distribution in combination with an unsustainable rise in borrowing as a causal factor that escalated the crisis. Debt levels relative to income escalated during the same period, but more perilously for the bottom 95% (see Exhibit 2). Debt is merely borrowed spending from the future, and becomes particularly onerous if incomes do not ri…

A primer on preferred securities

Carl Pappo, Head of Core Fixed Income | March 10, 2014

…including the structures, the motivation of issuers and investors and why we think preferred securities make sense in the current market environment. What is a preferred security? Preferred securities carry attributes of both debt and equity securities. Preferred securities rank higher in the capital structure relative to common equity, as they have a priority claim on dividend payments and a higher claim on assets in a bankruptcy. Preferred secu…

Income inequality, disinflation and profit growth – the role of globalization

March 10, 2014

…as tended to rise in both developed and EM. We believe that this is associated with higher returns to education and capital that go hand in hand with the process of globalization. Data for consumption inequality and household debt-to-income ratios across income deciles outside developed markets is sparse. But it does not appear obvious that patterns in the U.S. are at all in evidence in countries like China. Interestingly, despite levels of inequ…

Puerto Rico’s double-downgrade

Michael Taylor, Senior Municipal Analyst | February 10, 2014

What’s behind the downgrade of Puerto Rico’s credit ratings by Standard & Poor’s and Moody’s? The double-downgrade puts pressure on Puerto Rico to shore up its finances in the coming weeks A future default or debt restructuring could rattle investor confidence and impact all municipal market issuers On February 4, Standard & Poor’s lowered its long-term credit rating on the Commonwealth of Puerto Rico’s (PR) general obligat…

Detroit’s collateral damage

Ty Schoback, Senior Municipal Analyst | October 24, 2013

The State of Michigan’s failure to preserve the integrity of the General Obligation (GO) pledge in Detroit has greatly undermined the market’s confidence in debt issued within Michigan. It has also resulted in increased borrowing costs for other Michigan entities. The State communicated to investors the UTGO security pledge of local governments should not be considered any stronger than a basic appropriation or lease, raising significant concer…