Perspectives Blog

A port in the storm — Short muni funds can offer refuge in the face of rising rates

Catherine Stienstra, Senior Portfolio Manager | October 2, 2014

…as played out, we understand why investors remain hyper-cautious about the impact rising rates may have on their bond investments, particularly with interest rates hovering near 14 month lows and the significant year-to-date outperformance of long muni bonds. Admittedly, there are conditions in place that could anchor interest rates at low levels for some time, namely comparatively lower eurozone rates, dormant wage and price inflation, and intra…

Interpreting the bond rally from a multi-asset perspective

Jeffrey Knight, CFA, Global Head of Investment Solutions and Asset Allocation | June 2, 2014

…ework for identifying capital market states can help set expectations for markets in the aftermath of the recent bond rally. Our framework suggests a highly bullish market state for equities although that market state would shift to bearish if conditions became more neutral. While we expect ongoing strength in equities (which should pressure bond markets and drive yields higher), the durability of strong performance in risk asset markets will be…

Q3 fixed income outlook – The demise of volatility

Gene Tannuzzo, CFA, Senior Portfolio Manager | June 30, 2014

…rs may be better served staying invested rather than sitting in cash or taking a decisively negative position on bonds. History has shown that volatility can stay low for extended periods. In that case, we would expect credit sensitive assets to continue to generate reasonable returns. While we think investors should retain exposure in the bond market, it is important to be flexible and protect the downside, especially when the price of insurance…

What’s the outlook for muni bonds?

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

…y relative to more volatile taxable fixed income alternatives, such as high-yield and investment-grade corporate bonds. While rates may in fact move higher later this year, we believe that even in such an environment, municipal bond investors will enjoy higher after-tax total returns with the promise of relative outperformance compared to other fixed income investment options. Taxable-equivalent yields — The muni yield story remains compelling Yi…

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

Why invest in long-term muni bonds? Why investors should focus on tax-free income and total return Many investors fled the muni market in 2013, as $60 billion in mutual fund redemptions attests. Particularly hard hit were longer-maturity funds, likely due to investors anticipating higher interest rates and the negative impact that would have on fixed-income investments, especially longer bonds. While such concerns appear rational, is avoiding…

Navigating the municipal bond market

James Dearborn, Head of Municipal Bonds | February 5, 2014

In recent months there has been a lot of concern and anxiety in the municipal bond market, and investors remain skittish. Although the general trend in municipal credit is positive, investors should be mindful of the risks associated with Puerto Rico municipal bonds. We believe the combination of high tax equivalent yields, increasing tax rates, a steep yield curve and improving fundamentals result in higher tax revenues and restrained spending…

Bond yields are too low somewhere

Zach Pandl, Portfolio Manager and Strategist | July 14, 2014

Long-maturity bond yields are determined at a global level. Abnormally low forward rates are not just a U.S. phenomenon: there’s been a similar shift in the relationship between rates and growth across developed markets. If global rates remain persistently low, financial conditions will eventually need to tighten in other ways to offset this unexpected stimulus. The big surprise in bond markets this year has been the low level of long-maturity…