California has endured four years of severe drought, raising fears of economic hardship and reduced revenues at water authorities. We don’t think the state will run out of water—or money to pay its debts. [Read More...]
With Rates Going Up, Give Bonds Some Credit
After the bond market’s stumble last quarter, defending against rising rates has moved front and center for many investors. One approach that has been effective over time has been exposure to credit-oriented sectors and strategies. [Read More...]
Beware the Dangerous Stretch for Yield
The US Federal Reserve talked in early summer about tapering its quantitative easing plan and raising interest rates—in part to stop investors from chasing yield into the arms of riskier loans. In the high-yield market, however, the conversation had exactly the opposite effect. [Read More...]
Will Two Key Sectors Survive China’s “Long” Landing?
Based on insights from our team’s recent trip to China, we noted that the country is likely headed for a long economic landing. What does that mean for its infrastructure and commodity sectors? [Read More...]
Are Bank-Loan Investors Getting What They Bargained For?
Investors who chose high-yield bank loans over high-yield bonds earlier this year, expecting to be insulated against rising rates, might be surprised to find that bonds might have worked out better. [Read More...]
Dig Deep—Then Dig Some More—to Uncover Risks in EM Corporate Debt
Emerging-market (EM) corporate debt returned big numbers for investors in recent years, as the sector rode a general wave of optimism about the future. But those days are gone. In 2013, successful investors have had to take a more painstaking path. [Read More...]
Detroit and Illinois Work Toward Resolving Their Issues
Recent negative news about Detroit’s bankruptcy and Illinois’s pension overhaul has raised fears about the poor financial health of many cities and states. And it’s shaken individual investors’ confidence in municipal bonds. Just how worried should investors be? Not very, in our opinion, as bond defaults remain very rare. In fact, we view recent events in Detroit and Illinois as positives for the market. [Read More...]
Back to the Future: What Time Is It for Bonds?
Investors often ask us how they should think about bond markets in a time of rising yields. Are we facing a situation similar to 1994? Or worse, could it be like 1981, when five-year US Treasury yields soared to 15%? Our answer often surprises them: we don’t think it’s either. [Read More...]
Reaching for Yield: Worth the Risk?
Investors seeking more robust returns in a lower-interest-rate environment often look to high-yield bonds for answers. But it’s critical that they don’t reach too far down the credit spectrum in search of higher yields—as tempting as it may be. [Read More...]
Muni Investors Should Watch Both Ends of the Curve
In early 2013, we urged investors to take a hard look at the interest-rate risk in their bond portfolios. If they didn’t do it then, they have a chance to do it now. [Read More...]
Keep an Eye on LBOs, but Don’t Fret Just Yet
This year’s leveraged buyouts (LBOs) are being financed with more debt and include fewer protections for creditors. Regulators, the press and market participants are watching this closely, and so are we. But we don’t think it’s worth losing sleep over—at least not yet. [Read More...]
Multisector Plan Can Help Avoid the Crowd in Credit
Chasing returns into—and out of—specific credit sectors happens so often in bond markets that it hardly rates a raised eyebrow. But running with the herd can be risky, which is probably why Federal Reserve officials reportedly have discussed slapping exit fees on bond funds to avoid a disorderly rush to the exit. [Read More...]
Bank Regulation: A New Opportunity in Credit?
European banks are issuing new subordinated bonds that can be written off in a crisis. For investors who are willing to take the risk, our analysis suggests these bonds may provide a way to beat the low returns in today’s corporate bond market. [Read More...]
The Core of the Modern Bond Strategy: Go Global
“Keep Calm and Carry On” reads a popular World War II–era British motivational poster. We think the first half of the slogan is good advice for bond investors in today’s uncertain markets, but we’d substitute the second with “Go Global.” [Read More...]
The Right Fit: Global Bonds and DC Plans
At a time when US defined contribution plans are seeking to control risk and enhance returns, hedged global bonds can improve outcomes for participants and sponsors. But how do plans incorporate global bonds in core menus and target-date funds? [Read More...]
CLO Rule Change Clouds Outlook for Bank Loans
Retail investors fell out of love with US bank loans this year, but demand from issuers of collateralized loan obligations (CLOs) has remained strong. New regulations may change that. Should investors be concerned? We think so. [Read More...]
Divergent Interest Rates: A Golden Opportunity
US interest rates look set to rise in 2015, and that’s unsettling for some fixed-income investors. But here’s the good news: US bonds aren’t the only game in town. [Read More...]
High-Yield ETFs: Don’t Get Fenced In
Few high-yield investors have weathered the recent plunge in energy prices without experiencing at least a few bumps and bruises. But those who relied on broad market exchange-traded funds (ETFs) to gain market exposure are nursing the most serious wounds. Coincidence? We don’t think so. [Read More...]
Lesson of the Oil Collapse? Do Your Own Credit Homework
The plunge in oil prices has hurt many highly-leveraged energy companies and their creditors. But it also reinforced an important lesson that investors and asset managers probably learned when they were schoolchildren: Always do your own homework. [Read More...]
Moving Beyond Municipals
Taxable US investors usually invest the fixed-income part of their portfolios in municipal bonds. But a tax-aware strategy with the flexibility to look for the highest after-tax return across sectors is likely to be more rewarding over time, as my colleague Terry Hults explains below. [Read More...]