Perspectives Blog

Interest rates in a highly indebted economy

Zach Pandl, Portfolio Manager and Strategist | October 13, 2014

…is no fixed cap on the level of interest rates. Any increase in interest rates must be consistent with tolerable debt service ratios, the existing stock of debt and private sector savings. It’s in this context where Fed officials’ delicate approach to the exit process looks most understandable. The deleveraging constraint Last week the Federal Reserve reported that U.S. households’ mortgage debt service ratio—the share of disposable income dedic…

From tactical to core – The case for emerging market debt

Columbia Management, Investment Team | June 2, 2014

…r, investors now need to look beyond corporate credit for incremental yield, and we believe that emerging market debt (EMD) offers an attractive, high-quality alternative. Emerging market debt is largely investment grade Hard currency EMD, i.e. bonds issued in U.S. dollars, is effectively a credit asset class and spreads (the yield premium) over U.S. Treasury bond yields can be more directly compared to corporate credit spreads. In fact, on a ris…

Credit alternatives in government-backed debt

Columbia Management, Investment Team | June 23, 2014

One way investors may boost yields without taking on undue credit risk is through U.S. government agency debt. While many investors associate U.S. agency debt with very low yields, other types of agency debt can offer significant spreads to Treasuries with a modest decline in liquidity. We have been increasing our allocation to the agency market in core portfolios as a way to reduce credit risk while maintaining competitive yields. By Carl W….

Is Europe heading for Japanese-style deflation?

Martin Harvey, Fund Manager, Threadneedle International Ltd | August 4, 2014

…l trade that caused a steep drop in economic activity in the wake of the Lehman collapse, while the onset of the sovereign debt crisis later played a part. The scale of the initial drop in the Eurostoxx index was similar to that seen in Japan in the early 1990s (Exhibit 1). On the surface, it appears that the Europeans are adopting correct policies as the Eurostoxx index has surged over the past year, and broken above the levels reached prior to…

Trouble in paradise: Q&A about Puerto Rico bonds

Chad Farrington, CFA, Head of Municipal Bond Credit Research and Senior Portfolio Manager | January 2, 2014

…mption (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 shareholders — that is until Puerto Rico debt started trading more in line with its weak fundamental credit characteristics. Since late summer 2013, municipal bonds issued by Puerto Rico have lost more than 20% of their value, with…

Half-time report on the U.S. consumer

Marie M. Schofield, CFA, Chief Economist and Senior Portfolio Manager | July 28, 2014

U.S. consumers have taken a more cautious attitude toward debt and been more selective about using it for discretionary purchases. With consumers using credit cards less and using debit cards much more, the supports for higher discretionary spending are keyed off income and wages and also employment. With low debt use and income growth holding back consumption and demand, households will require stronger job growth and real wage gains to accele…

A primer on preferred securities

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

…e 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 securities generally offer higher yields than senior unsecured debt from the same issuer, reflecting their junior pos…