The unprecedented participation of many central banks across the globe in the fixed income market has resulted in historically low developed market interest rates and significant outperformance of many non-government bond markets following the stress of the financial crisis of 2008. As we near the end of this accommodative monetary policy cycle through the tapering of asset purchases and eventual rise in policy rates, we believe it is useful to re-examine the fixed income market to evaluate where potential opportunities currently exist.
After years of unbalanced economic growth, China is now attempting a fundamental shift in economic structure. China has begun shedding excess capacity in multiple sectiors and has started to rein in rising risks to its finanacial sector. We believe China needs to deleverage further and finds its way to a main sustainable long term growth path.
With the prospect of higher rates over the next few years many investors are concerned about the implications for their fixed income portfolio. We explore here that there are many factors that may temper the impact of rising rates.
For over a century, federally tax exempt municipal bonds have been the main source of funding to finance infrastructure projects – such as roads, schools, utility plants, bridges, hospitals and airports – that are essential to our everyday living. At Standish we appreciate the value of infrastructure bonds and believe investors should consider their potential benefits.
Standish Chairman Emeritus Ted Ladd looks at the various macro and market risks created by the Fed's prolonged easing and enumerates his 20 misgivings.
TIPS were one of the top performing fixed income securities over the past 2 years. Nonetheless, TIPS investors who own the sector as an inflation hedge need to understand that duration sensitivity of TIPS and how it impacts its effectiveness as an inflation hedge in a rising interest rate environment.
With interest rates on high-grade bonds at multi-generational lows, it is not surprising that municipal bonds put up very strong investment returns in 2012. We observe that very favorable supply and demand conditions, as well as improvements in investors’ perceptions of state and local credit quality, have driven many parts of the municipal bond market to historically rich valuations, both in an absolute sense and relative to US government securities.
We review the factors which pushed municipal values to possibly unsustainable levels, and discuss how we are positioning portfolio to defend against a potential return to more normal relative prices.
We believe understanding the new structure of market liquidity is central to designing and implementing investment strategies that are appropriate for a transformed financial organism.
While many investors accept the notion of managing their assets to their expected liabilities in theory, there continues to be a number of misconceptions about LDI...
Standish believes the combination of developed and emerging markets with GDP fundamental weighting provides the potential for higher level of return per unit of risk.
Over the past 18 months Australia and Canada have become the new darlings of the global government bond market. In the case of Australia, such treatment seems, at least for the time being, warrented. On Canada, however, the mantle of 'safe haven' rests much more precariously.
In "Revisiting the Interest Rate Risk of TIPS", Robert Bayston and Nate Pearson explain why TIPS investors who own the sector as an inflation hedge need to understand the duration sensitivity of TIPS and how it impacts its effectiveness as an inflation hedge in a rising interest rate environment.
Senior investment professionals from Standish share their impressions from a recent trip to China of the delicate balancing act the country faces as it seeks to shift from an export-dependent model of growth to one based more on domestic consumption.
Corporations that are tax aware will attempt to minimize their tax liability, and will often invest in municipal bonds as the interest income on municipal bonds is exempt from U.S. Federal taxes.
In "Emerging Markets as ASTERISCS", Alexander Kozhemiakin explains why the term "emerging markets" is no longer adequate. He argues for a new concept of "assets tied to economies of risky countries," or ASTERISCS. This acronym better conveys the appeal and risks of emerging markets, whether referring to equities, bonds, currencies, or any other asset class, and better illuminates their place in a broader portfolio.
In the attached white paper, titled “The American Jobs Act – Less Impact on Municipal Bonds than Meets the Eye,” we discuss the key provisions in the proposed legislation which might affect municipal bondholders and issuers.
As debate heats up in Washington DC over raising the country's debt ceiling, David Leduc, Robert Bayston, and Tom Higgins discuss the potention implications of a US credit default on the US economy and global finanical markets.
July 2011 - In view of the political impasse surrounding the federal government's debt ceiling, David Belton, Head of Municipal Bond Research, discusses the potential impact on the municipal bond market.
In 'Emerging Markets Local Currenc Debt: Capitalizing on Improved Sovereign Fundamenta's', Alex Kozhemiakin discusses how the sizable growth differentials between emerging market countries and the developed world will continue to serve as a magnet for capital flows into emerging markets.
As the budget debate heats up in Washington, we believe it is likely that the tax-exempt status of municipal bond interest will come under greater scrutiny in the coming months.
In the attached white paper, entitled “Under Fire: Tax-Exemption of Municipal Bond Interest,” we discuss some items which might surprise you. First, municipals are held more broadly than is often assumed, and the elimination of tax-exemption would touch taxpayers across the income spectrum. Second, most proposals to kill tax-exemption would raise costs for state and local borrowers and potentially impair US infrastructure investment, and likely ignite very strong grass-roots opposition. Finally, elimination of tax-exemption going forward may be very beneficial for current holders of municipal bonds.
Euro-skeptics contend that sovereign debt woes in Greece, Ireland, Portugal and Spain will lead to the break-up of the common currency. See why we disagree in our latest white paper.