Perspectives Blog

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

…. Based on the past four tightening cycles, the average fed funds rate increased by 300 basis points. Given that bonds on the short end of the market are constantly maturing, short funds have natural and frequent reinvestment opportunities to increase yields without being forced to sell bonds in a potentially stressed market to generate cash to reinvest at higher rates. Source: Columbia Management Advisers, LLC 2. Investing in shorter maturity s…

The end of “risk-on/risk-off”

Anwiti Bahuguna, Ph.D., Senior Portfolio Manager | February 3, 2014

…ducing the benefits of cross-regional diversification. Similarly, correlation between equities and high yielding bonds rose from about 50% to over 80%. When investors took risk, most assets rallied with the exception of sovereign bonds. Conversely, when risk sold off, only sovereign bonds had positive returns. This risk-on/risk-off regime posed a problem for multi-asset portfolios as many of the traditional diversifiers of equities increasingly b…

Finding the sweet spot — Value investing along the muni yield curve

Paul Fuchs, CFA, Portfolio Manager, Municipal Bonds | August 27, 2014

…sed on the slope of the yield curve is commonly referred to as “roll-down,” which signifies the aging process of bonds. As bonds age, or become shorter in maturity, they are evaluated at lower interest rates, provided the overall yield environment has not changed and the yield curve is upward sloping. Historically, the municipal yield curve has been upward sloping the vast majority of time. Evaluating a bond at a lower yield will result in a high…

Asset allocation: The conundrum of 2014

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

When economic growth levels off, the headwinds for bonds subside, which fits the patterns of 2014 so far. With bond yields at current levels, the attractiveness of interest rate risk from a valuation standpoint is meager. Should the economic data reaccelerate, we would expect equities to perform well and rate sensitive bonds to struggle. In 2013, both the S&P 500 Index and the yield on 10-year Treasury bonds finished the year at their high…

Special report – 2014 mid-year review and outlook

Columbia Management, Investment Team | June 16, 2014

…ncreases in the second half of 2014 as bond markets begin to reflect the increasingly mature recovery. Municipal bonds James Dearborn, Head of municipal bonds investments Review: Municipal bonds had a strong first half of 2014. While the drop in Treasury rates since the end of 2013 is the primary reason for the strong performance, there are specific municipal bond market factors that bolstered tax-exempts’ returns including: a dearth of new suppl…

January asset allocation update

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

…xed income. While we have been anticipating an increase in volatility, we still believe equities will outperform bonds over the course of the year. The current low level of interest rates suggests returns from bonds remain unattractive on a longer term strategic basis. Real returns are likely to be low to potentially negative over a longer holding period for a number of fixed income markets. Although interest rate risk remains strategically unatt…

Fixed income strategies – The pros and cons of generating returns with negative duration

Columbia Management, Investment Team | July 14, 2014

…-hold approach ultimately would be a losing strategy. While Treasury yields may be low, they are still positive. Bonds funds that have positive duration can still generate positive returns if yields rise gradually. • Shortening portfolio duration for extended periods of time is not free and typically will lead to lower returns, especially if rates do not rise. (A normal yield curve illustrates that shorter maturity bonds yield less than longer ma…