Perspectives Blog

Hungry for income? High yield munis could be your meal ticket

Chad Farrington, CFA, Head of Municipal Bond Credit Research and Senior Portfolio Manager | May 28, 2014

High yield muni bonds represent an attractive investment opportunity Professional money managers can help with the intricacies of the high yield muni space Current income and potential tax advantages in the high yield space Attractive yields, potential for price appreciation Many investors are concerned about the prospect of rising interest rates and the impact higher rates may have on bonds, especially since we’ve been in a very low rate envi…

Don’t throw the baby out with the bath water – The case for long muni bond funds

Catherine Stienstra, Senior Portfolio Manager | January 29, 2014

…well. Looking over the past 30 years, the trailing two-year total return of municipal bonds (using the Barclays Municipal Bond Index as a proxy for longer muni bonds) was negative only once for a brief two month period. While munis occasionally have had a negative year, they have generally been consistent performers over time. On a valuation basis, long munis have become more attractive as 30-year yields ended the year at 107% of Treasury yields,…

The case for active muni management

Kimberly Campbell, Senior Portfolio Manager | April 21, 2014

…nd funds offer several compelling advantages in these challenging times. Many investors are turning to muni bond funds for the opportunity to earn an attractive tax-free yield with lower volatility than equities. In addition, munis have historically provided long periods of positive performance, as shown in the Barclays Municipal Bond Index chart below. Exhibit 1: Barclays Municipal Bond Index calendar-year returns Past performance does not guar…

Fear is not a strategy

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

…f defaults has trended down since 2010 and is on track to be significantly lower again this year. Given this improving story, we believe that most fears regarding widespread credit deterioration are overblown. We also believe munis can be a prudent choice for investors seeking competitive returns and tax-exempt income. Summing up Despite attractive after-tax yields and improving credit fundamentals, fear is keeping many muni investors on the sid…

Gut check: The outlook on fixed income

Colin J. Lundgren, CFA, Head of U.S. Fixed Income | February 24, 2014

…municipal bonds? Maybe not first, but should win a medal. Municipal bonds suffered with most other high-quality fixed-income sectors in 2013. The asset class tends to have longer durations so rising rates can be challenging. Munis also suffered from negative headlines (such as Detroit, Puerto Rico) and persistent outflows. But the underperformance of the sector appeared excessive to us. Any fixed income asset class that has duration warrants som…

What’s the outlook for muni bonds?

James Dearborn, Head of Municipal Bonds | June 19, 2014

…n negative in April, as investors sell municipal bonds to pay taxes. However, such selling didn’t occur in 2014, probably because much higher tax bills created an incentive for investors to sell taxable investments instead of munis. Exhibit 2: Municipal bond mutual fund net flows ($million) Source: ICI, May 2014 On the other side of the ledger, the net supply of municipal bonds has been negative in recent months, with bond maturities and redempt…

Finding the sweet spot — Value investing along the muni yield curve

Paul Fuchs, CFA, Portfolio Manager, Municipal Bonds | August 27, 2014

We look for securities that offer a balance of credit fundamentals and yield. We use a “roll-down” analysis to identify the sweet spot on the yield curve. We believe yield curve positioning is the largest driver of returns for intermediate municipal portfolios. The cornerstone of the Columbia Management municipal investment process is identifying relative value opportunities. As we construct and manage portfolios, a relative value component is…