Varying macro risks indicate global divergence
As indicated by China’s surprise interest-rate cut, global markets offer a variety of macroeconomic conditions and opportunities for active bond investors.
As indicated by China’s surprise interest-rate cut, global markets offer a variety of macroeconomic conditions and opportunities for active bond investors.
Short-term income securities have attracted interest in recent months from investors seeking opportunities in a moderately growing U.S. economy, but concerned about risk spreading from Europe’s banking sector.
A modest pace of economic recovery has helped to keep the corporate default rate below historical averages and provides favorable conditions for high-yield bonds. Lower-rated bonds may offer higher yields in return for more risk.
There are two main issues at stake in the European debt markets. The first is a short-term liquidity issue: Will these economically troubled European nations have the capital to make the next interest payments on their debts? The answer, for the time being, appears to be yes: Greece, after receiving massive funding infusions, has been
Around the world central bank interest-rate policies have diverged to address different challenges, including the eurozone debt crisis, but efforts in the United States, Europe, and Japan to hold short-term rates low could cause movement in long-term interest rates.
We continue to find a number of reasons for a positive outlook on the high-yield bond sector. First, the long-term average spread in the high-yield market is close to 500 basis points, so today high-yield spreads are at above-average levels. But at the same time, the fundamental backdrop for high-yield corporate bonds continues to be
Amid a moderate economic recovery, cautious spending by corporations may make high-yield securities more attractive as investments.
We believe municipal bond investments are potentially quite attractive: Defaults have remained low, contrary to overblown predictions in the media; spreads are attractive on a historical basis; and muni/Treasury ratios are still above historical averages. Defaults in the municipal bond market are generally misunderstood. While defaults do happen, they occur with far less frequency than
The classic strategic reasons to own municipal bonds still hold true: They generally have low correlations to other asset classes and offer a meaningful tax advantage to investors — features that we believe are unlikely to change in the near term. However, the municipal bond market has experienced a significant shift over the past several