Perspectives Blog

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…

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…

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…

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…

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…

The end of “risk-on/risk-off”

Anwiti Bahuguna, Ph.D., Senior Portfolio Manager | February 3, 2014

…es. While the commodity/equity correlation has diminished somewhat, commodities as an asset class remain sufficiently unattractive particularly when you take into account their much higher volatility. Treasuries or government debt remains the only asset class with a reliably negative correlation to equities over the risk-on/risk-off regime. But in 2013, correlation between equities and bond returns unexpectedly turned positive calling into questi…

Navigating rising rates

Columbia Management, Investment Team | June 11, 2013

…itive median total return, most sectors did experience price losses in the mid-single digit range. However, there are some examples of sectors that have experienced price gains even while Treasury yields rose. Emerging market debt stands out as a strong performer in these environments as sovereign fundamentals in developing economies are less dependent on U.S. rates. Floating rate bank loans have also seen modest price gains, as interest in the a…