Perspectives Blog

The perils and pitfalls of buying individual municipal bonds

James Dearborn, Head of Municipal Bonds | February 27, 2014

Volatile ratings leave retail investors at risk Retail investors could pay higher prices Deck is stacked against retail investors With an increasing focus on the benefits of owning municipal bonds — attractive after-tax yields, low historical default rates and relatively low volatility — investors are again considering purchasing individual muni bonds. But the deck may be stacked against the retail investor. The allure of owning individual bon…

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…

A primer on preferred securities

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

…tual non-cumulative preferred securities) to support liabilities. • Preferred securities typically viewed by issuers as a cheaper/less dilutive alternative to common equity. • Certain structures are given equity credit by the ratings agencies. • For certain structures, payments are deductible as an interest expense. Why do investors buy them? • Investors primarily view preferred securities as a way to buy a high quality company and receive an enh…

Fear is not a strategy

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

…tion of income may be subject to the federal and/or state alternative minimum tax for certain investors. Federal and state income tax rules will apply to any capital gain distributions and any gains or losses on sales. Credit ratings typically range from AAA (highest) to D (lowest), and are subject to change….

The case for active bond management

Carl Pappo, Head of Core Fixed Income | August 25, 2014

…sult, index funds are at a significant disadvantage to active portfolios in which managers incorporate valuation into their decision making process. For example, the Barclays U.S. Aggregate Index requires two investment grade ratings from Moody’s, Fitch and/or Standard & Poor’s. When a company is downgraded below investment grade, all investment grade index funds are forced to sell at the same time, regardless of valuation. Furthermore, we ha…

Weekly market summary (1/31/14)

Columbia Management, Investment Team | February 3, 2014

…U.S. Corporate Investment Grade Index is an unmanaged index consisting of publicly issued U.S. Corporate and specified foreign debentures and secured notes that are rated investment grade (Baa3/BBB- or higher) by at least two ratings agencies, have at least one year to final maturity and have at least $250 million par amount outstanding. To qualify, bonds must be SEC-registered The BofA Merrill Lynch High-Yield Bond Master II Index is an unmanage…

The case for active muni management

Kimberly Campbell, Senior Portfolio Manager | April 21, 2014

…like automated passive strategies. In past years, when more than 50% of the municipal market was triple-A insured, passive investing may have made more sense. Nowadays, with heightened volatility and uncertainty around credit ratings, internal credit research accompanied by consistent credit surveillance of issuers, which active managers can provide, is extremely important to investment returns. Remember, credit rating agencies only rate bonds, t…