Perspectives Blog

Duration for diversification

Columbia Management, Investment Team | November 19, 2013

…, relates to diversification. Since 1992, longer term Treasury securities (7- to 10-year maturity) have delivered an annualized total return of 7.2% (Barclays). Because of rising rates, we expect total returns for longer term Treasuries to fall to around zero for the next 1–2 years. You can think of this as a downward shift in the distribution of returns — instead of a midpoint of 7.2%, the midpoint falls to zero (Exhibit 1). But the critical poi…

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….

U.S. rates — View update

Zach Pandl, Portfolio Manager and Strategist | April 4, 2014

Compared to the market consensus, our views have been more negative on three key duration fundamentals. Following recent remarks by Fed Chair Janet Yellen, we are now less confident about how to read Yellen’s policy strategy. We are still expecting higher rates; however, we now have less conviction that 3-5yr Treasuries will continue to underperform on the curve. For the last couple of months we have argued that portfolios should remain underw…

Asset allocation: The conundrum of 2014

Jeffrey Knight, CFA, Global Head of Investment Solutions and Asset Allocation | March 3, 2014

…return landscape, while bonds and numerous other assets struggled. The environment apparently changed, though, with the turning of the calendar to 2014. In the New Year, bonds have performed quite well, with yields on 10-year Treasuries, as an example, falling from 3.03% to 2.67% so far this year. Stocks meanwhile, have been volatile, yet stand close to unchanged on a year to date basis. Source: DataStream, February 2014 There are two good reaso…

What’s the outlook for muni bonds?

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

…icit requiring less borrowing and attractive relative valuations compared to other bond markets. Apart from the bond friendly decline in rates, municipals enjoyed a confluence of additional factors that helped them outperform Treasuries. These supports include a dearth of new supply, with issuance down more than 25%; a resurgent demand bred of investor appetite for attractive taxable-equivalent yields, compared to other fixed-income alternatives;…

The case for active bond management

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

…bit 1). During that period, investors would have been better off with an underweight to the Treasury sector and overweight investment grade credit. Passive managers have been forced to continue to increase their allocation to Treasuries as the federal deficit swelled and was financed through the issuance of Treasuries. Exhibit 1 Source: Barclays, July 2013 Unlike passive strategies, an active manager’s objective is to outperform the benchmark. T…

What should U.S. bond investors expect in 2014?

Zach Pandl, Portfolio Manager and Strategist | January 6, 2014

…ecurities tend to perform best when the economy performs poorly—when growth and inflation are falling and the Federal Reserve eases monetary policy. Exhibit 1 shows this relationship using returns over the last three decades. Treasuries show up in the lower left corner, meaning that their returns are negatively correlated with growth and inflation surprises. In other words, Treasury returns increase when growth and/or inflation fall. The combinat…