Perspectives Blog

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

…, state and/or federal income taxes. As tax rates move higher, investments that provide income exempt from taxes, such as municipal bonds, become more appealing. There was a significant increase in rates and steepening of the yield curve in 2013, as the yield on the 30-year AAA muni bond increased by 134 basis points, ending the year at 4.19%. While we expect rates to gradually move higher over the next year, we believe that most of the movement…

Compelling opportunity in municipal bonds

Catherine Stienstra, Senior Portfolio Manager | November 7, 2013

Municipal bond market movements have provided an attractive opportunity to lock in attractive yields. Although credit problems in Detroit and Puerto Rico made headlines, these issues are not representative of the broad municipal market — the number of municipal defaults is at its lowest level since at least 2009. With rising tax rates, the advantages of tax-exempt income can be considerable. Attractive yields vs. corporate and Treasury b…

Q2 fixed income outlook – Hitting for the cycle

Gene Tannuzzo, CFA, Senior Portfolio Manager | March 31, 2014

We have started to reduce exposure to high-quality bonds with limited upside potential and high-yield bonds in which credit risk appears too aggressive. Following weakness last year, emerging market debt has posted gains this year, and we expect further strength ahead as volatility subsides. While we expect a flatter yield curve over the next few months as investors focus on the timing and pace of rate increases, we don’t think they should avoi…

U.S. rates — View update

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

the last couple of months we have argued that portfolios should remain underweight duration and be especially cautious about the 3-5yr part of the curve. Broadly speaking this view remains intact, and we still expect Treasury yields to rise meaningfully over the coming months. However, we now have less conviction that 3-5yr Treasuries will continue to underperform on the curve. Compared to the market consensus, our views have been more negative o…

Municipals flashing “buy” signal

Chad Farrington, CFA, Head of Municipal Bond Research | July 8, 2013

The recent swift correction in tax-exempt interest rates has created opportunities for municipal bond investors to attain very attractive risk-adjusted returns. An investor in the highest tax bracket could achieve around a 7.0% taxable equivalent yield in today’s market environment. With credit quality largely remaining stable for many municipal issuers and rates significantly higher than just a few weeks ago, this may be a good time to lock in…

Gut check: The outlook on fixed income

Colin J. Lundgren, CFA, Head of Fixed Income | February 24, 2014

…ect bonds to re-price well in advance of any Fed action. An important difference in the next big move in rates is that it will likely take place in shorter maturities rather than long maturities. In bond jargon, we expect the yield curve to flatten. Has the outlook for high quality bonds improved? Modestly. 2013 was the second worst calendar year on record for the Barclays Aggregate Index with a negative return of 2.9% and only the third negative…

A primer on preferred securities

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

Preferred securities can offer an attractive risk-adjusted yield in a low-yield environment. Straddling the line between fixed income and equity, preferred securities can help diversify core fixed-income portfolios. Investors equipped to analyze and trade these structures are able to find attractive relative value opportunities. Co-authored by Willow Piersol, Senior Analyst As financial institutions raise capital and reduce risk, preferred sec…