Perspectives Blog

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…

Q3 fixed income outlook – The demise of volatility

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

…er the past 20 years, dividing the market into four quartiles based on the level of volatility. Then, using high yield corporate bonds as a proxy for credit risk, we assess the prospective returns that bond investors have earned based on the starting volatility level. While low volatility environments often overlap with low yield environments, it would be easy to assume that prospective returns from corporate bond investing would be unattractive…

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…

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

Short term munis may make sense in a rising rate environment. They provide attractive yields and investment flexibility vs. cash investments and interest rate protection vs. longer assets. Cash investments have come with considerable opportunity cost in recent years. Co-authored by James Dearborn, Head of Municipal Bond Investments 2014 has offered many investment surprises, perhaps none bigger than the downward move in yields across virtuall…

Has dividend investing lost its luster?

Columbia Management, Investment Team | May 12, 2014

…le expansion accounting for the rest of the market’s rise. One result of this move is that the market’s dividend yield declined from over 2.5% to just under 2% currently. At the same time, U.S. Treasury rates (as measured by 10-yr bonds) rose by 1.25% to end the year at 3% reversing what had been a relatively unique phenomenon—yields on equities that exceeded longer-term government bond yields. Uncertainty about the Federal Reserve’s quantitative…