Perspectives Blog

Navigating rising rates

Columbia Management, Investment Team | June 11, 2013

Interest rates will rise at some point; investors must consider how to manage interest rate exposure in their portfolios. Duration can be a highly misleading measure of interest rate risk when making comparisons across products. For fixed income investors, sector exposure matters, and fundamental research can help avoid potholes. By Zach Pandl, Senior Interest Rate Strategist, and Gene Tannuzzo, Senior Portfolio Manager It’s time for investors…

Duration for diversification

Columbia Management, Investment Team | November 19, 2013

Many investors struggle to determine the appropriate amount of bond duration in an environment of rising interest rates. The right amount of duration has to be considered in a portfolio context, because the main value of duration exposure comes through diversification. Because of the negative correlation between duration and the returns of riskier assets, high-quality fixed income will still be a cornerstone of any disciplined portfolio. By Za…

U.S. rates – Headwinds

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

At this week’s meeting, the Federal Open Market Committee looks likely to rework its forward guidance for short-term interest rates once again. We expect revised forward guidance to lean heavily on the idea of “headwinds”; this is a stand-in term for a low equilibrium real rate. We expect that the new guidance will make three main points: (1) that the FOMC is in no hurry to raise rates, (2) that rate hikes can proceed gradually once…

How much and how fast?

Marie M. Schofield, CFA, Chief Economist and Senior Portfolio Manager | August 29, 2013

The recent rise in long-term interest rates could negatively impact the housing market, which has been a driver of economic recovery. The effect of higher interest rates will typically show up first in the data for new home sales data, which have dropped sharply. The combination of skyrocketing rates and more expensive and rising prices has likely impacted the marginal buyer’s affordability for a new home. One of the most worrisome aspects of…

U.S. rates — View update

Zach Pandl, Portfolio Manager and Strategist | April 4, 2014

Compared to the market consensus, our views have been more negative on three key duration fundamentals. Following recent remarks by Fed Chair Janet Yellen, we are now less confident about how to read Yellen’s policy strategy. We are still expecting higher rates; however, we now have less conviction that 3-5yr Treasuries will continue to underperform on the curve. For the last couple of months we have argued that portfolios should remain underw…

U.S. rates — play for growth

Zach Pandl, Portfolio Manager and Strategist | December 10, 2013

More signs that U.S. growth is accelerating; with 7% unemployment rate, look for qualitative communication changes at next FOMC meeting. Higher odds of December taper but we still think January is more likely (with possible hint in December press conference). We wonder whether front-end rates can remain anchored as growth picks up. The November employment report brought more positive news on U.S. activity, with a healthy gain in nonfarm payrol…

U.S. rates – Forward guidance taxonomy

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

…institutional details of the policy framework. Statements that contain explicit commitments are more credible and should be taken more seriously by investors. Forward guidance based on forecasts alone (“we think we will raise rates next year because we forecast that inflation will rise”) is easier to reverse, less credible and should be given less weight by investors (even if it conveys some relevant information). The motivation for forward guida…