Perspectives Blog

Gut check: The outlook on fixed income

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

The next big move in rates may be triggered by concerns about possible future Fed rate hikes. High-quality bonds may struggle to generate coupon-like returns. Emerging markets may ultimately benefit from the synchronized uptick in growth in global developed markets. With nearly two months of the year behind us, we thought now would be a good time to see how the fixed-income market is faring in 2014 and assess our outlook. We asked our investme…

A primer on preferred securities

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

…? • Investors primarily view preferred securities as a way to buy a high quality company and receive an enhanced yield relative to the senior unsecured debt. Currently, the yield on traditional preferred securities is 200 to 250 basis points above the yield of senior unsecured paper. • U.S. corporations can deduct 70% of income received on certain preferred securities (DRD Preferred securities). • Individuals pay a maximum statutory rate of 20% o…

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

…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 — and damage to long bonds — has already occurred. The resulting higher and steeper curve (see Exhibit 1) has lef…

U.S. rates — When the facts change

Zach Pandl, Portfolio Manager and Strategist | September 10, 2014

Prospective returns for Treasuries now look poor across the curve—not just at the front end. Yield curves tend to flatten as central banks raise short-term rates, but valuations have now moved beyond the point where these trades make sense. Investors should brace for higher interest rates, not just a flattening yield curve. When the facts change At the start of this year our views on U.S. interest rates were underpinned by two main facts: (1)…

The taxman cometh

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

…nse for tax-sensitive, income-oriented investors. After taxes, municipal bonds make sense Today’s municipal bond yields look compelling, especially for high tax bracket investors. If an investor takes the time to determine how much more one has to earn on a taxable fixed income investment to be equal with a tax-free municipal bond — after paying taxes — she will realize how attractive muni bonds are. In Exhibit 1, we compare municipal yields, adj…

From tactical to core – The case for emerging market debt

Columbia Management, Investment Team | June 2, 2014

…ial crisis have all but disappeared. However, 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…

Q2 fixed income outlook – Hitting for the cycle

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

…interest rate increases are quite possible by mid next year. From current levels, we think intermediate-maturity yields (3-7 year) should rise, and investors should reduce interest rate risk, or duration, in that part of the curve. We expect a flatter yield curve over the next few months as investors focus less on tapering, and more on the timing and pace of rate increases. However, we don’t think investors should avoid duration altogether. While…