Commentary

Resiliency Through Uncertainty: Staying with Municipals

Different investors will choose different paths in response to the challenge of low rates and high credit uncertainty. Some may want to fight the trend by taking on more risk to achieve a target level of income or return.

Commentary

In Cyclical/Secular Tug of War, Bond Investors Could Still Find Opportunities

Bond holders can still find opportunities amid the tug of war between strengthening cyclical forces that usually produce inflation and powerful long-term trends—an aging population, technology’s impact on labor and the overhang of significant government debt—that are preventing the economy from overheating.

Commentary

Annual Outlook

In an environment of low rates and heightened uncertainty, the U.S. has experienced sub-par growth during this economic cycle relative to past expansions. But compared to the rest of the world, the U.S. has been a strong performer. And even with only moderate growth, the U.S. economy has experienced healthy job creation – 11 million jobs since the bottom of the recession, 3 million created last year, the highest since 1999, and 2.5 million this year.
Commentary

Annual Outlook Address

The uncertainty caused by speculating on when the Fed will raise rates is almost worse that the move itself. We think the Fed needs to forecast where the U.S. economy will be in terms of full employment and inflation a year or two down the road given the long and variable lags of the impact of their policy changes. We think they have been too optimistic in terms of the expected growth of the economy.
Commentary

Reframing Expectations

Even facing headwinds, bonds still serve important roles in a portfolio, including diversification and downside protection potential. As the heavy burden of total return falls on interest income, investors are being pulled toward higher-yield, higher-risk bond types. Investors can still benefit from the segmented bond market and the various strategies that are available. Expectations need to be reframed given the current environment of low yields and potential interest rate increases.
Commentary

Focus on What You Know and Can Control: Be Aware of Unexpected Risks in Bonds

While corporate bonds have seen improvement in credit fundamentals, similar improvement has not taken place for municipal bonds. Ongoing challenges in municipal credit could have a meaningful negative effect on municipal bonds. Many callable bonds with longer maturities face significant extension risk with an upward movement in interest rates. Durations currently pegged to shorter call dates could extend as issuers are less likely to call in bonds prior to maturity as interest rates rise. As callable bonds get re-priced to longer maturity dates, the resulting price declines could be profound.