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…

Asset allocation: The conundrum of 2014

Jeffrey Knight, CFA, Head of Global 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…

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…

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…

Compelling opportunity in municipal bonds

Catherine Stienstra, Senior Portfolio Manager | November 7, 2013

…vides an attractive opportunity to lock in attractive yields Depending on credit quality and maturity, municipal bond investors today may be able to earn taxable-equivalent yields above 8%, far higher than yields provided by Treasuries or corporate bonds.* The yield curve is steeper than historical averages, allowing for yield pick-up on intermediate- and long-maturity bonds. Municipal/Treasury yield ratios indicate municipal bonds are cheaper v…

Global Asset Allocation Outlook (as of February 24, 2014)

Columbia Management Global Asset Allocation Team, | March 10, 2014

…nue to lag developed market performance. And, Japanese equities also regained some ground lost in February but are still down for the year in total. Fixed-income returns have been positive across all sectors with longer dated Treasuries, municipal debt and high-yield corporate bonds leading the way. The dollar weakened against both emerging market and developed market currencies. Despite a slight slowdown in recent economic growth, our Global Ass…

The taxman cometh

James Dearborn, Head of Municipal Bonds | March 13, 2014

…ive muni bonds are. In Exhibit 1, we compare municipal yields, adjusted for the benefit of the tax-exemption, to other fixed-income instruments. The taxable-equivalent yield of investment-grade municipal bonds easily outpaces Treasuries and investment-grade corporates and rivals corporate high-yield bonds while high-quality municipal bonds are in the same ballpark with non-rated corporates. Yields on high-yield municipal bonds easily outpace all…