Perspectives Blog

Are municipal bond rating agencies shifting the goalposts (again)?

Columbia Management Municipal Investment Team, | September 30, 2013

In 2010, public ratings agencies upgraded en masse, or “recalibrated,” tens of thousands of municipal bonds without without a formal review of each obligor’s underlying credit characteristics. Recently, Moody’s and S&P announced new revisions to their General Obligation (GO) rating methodologies. S&P’s revision is anticipated to result in an upward migration of their local GO ratings (60% unchanged, 30% upgraded, 10% downgraded), while…

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…

Puerto Rico’s turbulent ride

Michael Taylor, Senior Municipal Analyst | September 26, 2013

Puerto Rico’s economic contraction and fiscal decline is persistent, well-documented and widely acknowledged within the municipal marketplace. For Puerto Rico, continued access to affordable capital remains imperative for the maintenance of fiscal operations, liquidity, and maintaining investment-grade agency credit ratings. We maintain the opinion that investing in Puerto Rico municipal bonds remains appropriate only for investors who can tole…

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 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…