Washington’s off-again, on-again debate about the tax exemption of municipal bonds appears to be off again as lawmakers grapple with budget and debt issues. Proposals to change the tax treatment of municipal bonds could resurface again during the congressional elections in late 2014.
One of the decision points that the Fed will encounter as it considers tapering its quantitative easing (QE) measures will be the relative strength of the housing market. One factor influencing this strength is mortgage rates. The interest rates on long-term (30-year) loans have risen above 4% on the back of the move to higher
It appears likely that the U.S. economy will continue to improve, keeping interest rates elevated and volatile. The U.S. recovery, despite higher taxes, generally rising interest rates, and broad-based budget cuts enforced by the federal sequester, appeared to remain on track through the second quarter, and we see the United States maintaining this course in
Given the climate of rising rates — and the degree to which rates have shown their ability to back up on fears of the eventual quantitative easing (QE) withdrawal — we believe term structure risk is best avoided in favor of sectors with more attractive risk-and-return profiles. In the second quarter of 2013, the debate
The Fed’s comments in May and June about reducing its asset purchase program generated significant interest-rate volatility in the United States, changing the opportunity set for fixed-income investors. Spread sectors — meaning sectors that trade at a yield premium to U.S. Treasuries — that had been buoyed by the massive liquidity created by the Fed’s
For several decades, the Barclays U.S. Aggregate Bond Index (known as the Lehman U.S. Aggregate Bond Index until November 2008) has been a central reference point for bond investors — a benchmark with widespread acceptance comparable to the S&P 500 or the Dow Jones Industrial Average in the equity world. The “Agg” comprises more than
We evaluate the high-yield market by looking at three key factors: fundamentals, valuation, and “technicals,” or the balance of supply and demand. We are neutral on all three. Looking first at fundamentals, we see an economic landscape marked by countervailing trends. GDP figures in the United States continued to lag past recoveries. Nonetheless, corporate fundamentals
Investors have been somewhat more cautious on the corporate-debt sector lately, with spreads — which measure the yield advantage versus Treasuries — tight by historical standards. To be sure, the financial health of corporations in the investment-grade space continues to be quite strong. However, in a slow-growth macroeconomic environment, we believe it may prove challenging
A number of developments in early 2013, including the long deadlock in Italian politics following the March elections, and the brinksmanship surrounding the EU bailout for Cyprus’s banking system, were notable specifically because of the muted market reaction they elicited. These events were generally understood to be negative developments on the world stage, but for