Municipal Bonds

While red may be the color of the day, it’s a color investors have not seen from most asset classes over the last twelve months. For example, the S&P 500 rose ~26% and investment-grade bonds gained ~14%. However, just as in a healthy relationship, we cannot take this excellent performance for granted and become complacent about the future returns we expect to come our way.

Kenneth Leech, Chief Investment Officer at Western Asset Management, takes a deep dive into what he views as key market drivers throughout 2020 as well as his current view on various sectors within the bond markets.

A review of last month’s market-moving events across countries and asset classes.

One way for high-yield investors to gauge how their bonds may fare down the road has been with this simple, accessible and historically accurate tool.

This morning the monthly job openings and labor turnover (JOLTS) report was released, and it came in significantly shy of expectations. While Bloomberg’s consensus estimate was for 6.925 million job openings, the actual number came in at 6.423. It is important to keep in mind that this is December data, so it doesn’t yet reflect the impact of the coronavirus on business operations.

As Russ explains, bond yields may be low, but are still critical as an insurance policy against equity risk.

At the start of 2019, I compiled a list of predictions that so-called “gurus” had made for the upcoming year for a consensus on the year’s “sure things.” It is now time for my final review.

Fixed income markets are different from equity markets. This statement is absurdly self-evident when put into writing. But it’s not as obvious when put into the context of today’s market dynamics.

Research Affiliates examines how different asset classes perform across full market cycles, and discusses how macro forecasts inform its investment strategies.

CLSA predicts that the price of gold will beat the S&P 500 in 2020. The Hong Kong investment firm has an impressive track record when it comes to making market predictions—last year it had a 70 percent hit rate—so it may be prudent to take this one seriously.

Today I want to look at some aspects of GDP we rarely consider, thinking about how they affect our analysis and choices. But first, let’s talk about where GDP is now and where it may go in the near future.

A deep dive into the factors that brought inflation down and are keeping it low.

We believe that bonds will continue to provide benefits in terms of both portfolio diversification and return. However, with absolute yields at low or even negative levels in some markets, these benefits may be muted relative to historical patterns. These dynamics heighten the need to take an active, global approach to a fixed income allocation.

Private assets are popular today as investors are reaching out on the risk spectrum for return. This behavior is always interesting to us since history shows it often leads to losses. We wanted to dig into private markets and see if excess returns are easily earned.

Pricing dislocations in Europe, performance dispersion across the credit spectrum and shifts in the political landscape should likely provide abundant opportunities for select hedge strategies in the year ahead, according to K2 Advisors. The team shares some macro themes and questions its focused on, and shares its outlook for various hedge strategies.

It is probably hard to remember after a week or so of coronavirus fears, but during Q4 2019, “risk” assets once again outperformed “haven” assets. This was after two quarters of “haven” asset outperformance.

Quantitative Easing (QE) policies in developed countries triggered a flight from yield in EM as investors pursued capital gains in developed markets instead. As the capital gains in developed markets fade and with yield nowhere to be found, a search for yield in EM has finally begun.

ESG investors, take note: a controversial new bond format that links a company’s sustainability goals to its bottom line could be a game changer.

Unlike the weather, where predicting over the long term has much more error than predicting for tomorrow, we have a better idea of probable outcomes for how markets will perform in the 2020s than how they will do in 2020.

Domestic stocks had a strong start to the year but soon ran into headwinds related to geopolitical risks in Iran and the Wuhan coronavirus.

The past decade has been one for the record books. There has been unprecedented change in almost every aspect of life including technology, transportation, politics, etc.

In the annual letter to Berkshire Hathaway shareholders in early 2000, Warren Buffett attempted to remind everyone why value investing works, despite the financial euphoria all around him at that time. We will revisit this valuable lesson and draw implications for reviving enthusiasm for value investing at a point eerily similar to early 2000.

Late-cycle markets can unnerve high-income investors. But we see ways to generate a healthy level of income while potentially decreasing overall portfolio volatility.

You can build the best portfolio for your clients, but if they don’t stay invested, their chances of reaching their goals will be diminished.

These are the investment guidelines our firm uses. We invite you to adapt it and share it with your clients.

On Wednesday, the Federal Reserve concluded their January “FOMC” meeting and released their statement. Overall, there was not much to get excited about, as it was virtually the same statement they released at the last meeting. However, Jerome Powell made a comment which caught our attention...

Financial hardship often drive people to adopt views that were previously unthinkable. It is a very powerful behavioural pattern and has significant implications for financial markets. In this month’s Absolute Return Letter, we take a closer look at what it really means.

Two topics seemed to dominate at this year’s Inside ETFs conference: the rise of ESG investing, and the emergence of so-called “nontransparent” ETFs. Both promise some big changes to financial markets.

As you will see today, sometimes I get it really, badly, completely wrong. Thankfully, not too often.

Valid until the market close on February 28, 2019.

The S&P 500 closed January with a monthly loss of 0.16% after a gain of 2.86% in December. All three S&P 500 MAs are signaling "invested" and all five Ivy Portfolio ETFs — Vanguard Total Stock Market ETF (VTI), Vanguard REIT Index ETF (VNQ), Vanguard FTSE All-World ETF (VEU), iShares Barclay 7-10 Year Treasury (IEF), and PowerShares DB Commodity Index (DBC) — are signaling "invested".

Understand this. The more glorious this bubble becomes in hindsight, the more dismal future investment returns become in foresight. The higher the price investors pay for a set of future cash flows, the lower the return they will enjoy over time. Whatever they’re doing, it’s not “investment.”

The year 2019 was the complete opposite of 2018 across investment markets. Across the board nearly every asset class around the world, from bonds to stocks to gold to real estate, was down in 2018. 2019, on the other hand, delivered above average gains across those same asset classes.

With Brexit day finally here, the focus turns to trade negotiations between the UK and the EU.

It’s been 3-1/2 years since the United Kingdom voted to leave the European Union, and the process known as Brexit has been far from smooth. Now that the deadline to leave has passed, what’s next for the United Kingdom, and for Europe?

The current drawdown has been by far the longest as well as the second largest since July 1963, eclipsed only by the tech bubble from 1997 to 2000. Arnott, Harvey, Kalesnik, and Linnainmaa examine the potential causes of value’s underperformance and provide estimates of value’s performance relative to growth’s performance under different revaluation scenarios over the next decade.

The outlook for the muni market is favorable for 2020, but investors should be prepared for twists and turns. Staying flexible can help keep investors on track.

What can advisors learn from institutional investors? Try these four key moves.

Questions about environmental, social, and governance (ESG) issues are becoming central to commodity markets and capital allocation discussions.

As we head into 2020, municipal bonds will likely remain attractive for many tax-sensitive investors, but their performance potential could prove to be relatively muted compared to 2019, according to Sheila Amoroso, director of our Municipal Bond Department.

In the decades that I have been listening to politicians clumsily trying to explain the economy there has never been a period, with the possible exception of the early Reagan years, in which major party leaders were able to present a solid grasp of economic principles.

J.P. Morgan annually publishes long-term capital market assumptions. Using its 2020 edition, here are a selection of optimal portfolios that can be used by investors of different risk affinities.

Much has been written on measuring equity market valuations – but precious little on developing effective strategies to capitalize on the imbalances.

Rick Rieder, Russ Brownback and Trevor Slaven contend that eight major market influences are likely to dominate the investment environment in the year ahead and that the proper portfolio mix will be instrumental in delivering a successful outcome.

The trouble currently is that global short-term interest rates are still close to, or below zero, and cannot be cut much more, which has deprived central banks of their main lever if a recession strikes.

The Templeton Global Macro team takes a look at the implications of the coronavirus in China, and positioning for potential market shocks.

As we have written several times over the last 10 years, inflation has been kept down by the twin forces of globalization and technology (particularly digital technology). These forces are not going away, and in fact, digital technology is becoming increasingly pervasive throughout the economy, dramatically increasing efficiency and lowering costs in industry after industry. We do not see this trend abating.

Because it’s the first of the 12 zodiacs, the Year of the Rat is seen as a time of beginnings and renewals. That brings us hope, especially paired with the recent positive development in the U.S.-China trade war.

Chief Economist Scott Brown discusses the latest market data.

The idea that interest rates directly affect stock prices is a commonly held belief among many investors. There are some that even go as far as to say that the only reason the stock market is up is because interest rates have been artificially kept low by the Fed.

Alongside pockets of weakness in credit markets come pockets of opportunity for active managers who focus on rigorous bottom-up research and careful credit selection.

The last decade produced great performance across most asset classes. But in the 2020s, we expect investment market returns will be lower and risk harder to manage. Looking forward, a disciplined multi-asset approach will be especially valuable to identify opportunities and help mitigate setbacks.

Private credit relies less on broad market trends and more on the strength of each specific investment. For individuals facing retirement, institutions looking to satisfy long-term pension liabilities or even private investors looking for alternative investments, it offers high current income, low correlations with public markets and lower default risks than yield spreads would imply.

2019 proved to be a very strong year for almost all financial assets, as equities and bonds rallied in tandem. The Federal Reserve (the Fed) was compelled to play defense against a weaker global economy (particularly in Europe) and continued uncertainty related to the trade dispute between the U.S. and China.

Emerging markets are expected to grow more and grow faster than developed markets in 2020, and fundamentals appear attractive for both equities and debt. Trade tensions and global growth prospects are, as ever, the issues to watch in the new year.

In a low-yield, late-cycle environment, the right mix of credit securities and government bonds can help fixed-income investors boost income and tame volatility.

The US Federal Reserve (Fed) has gone back to expanding its balance sheet. Some claim that quantitative easing (QE) is back; the Fed denies it. What we call it isn’t the point, says Sonal Desai, Franklin Templeton Fixed Income CIO—what matters are the implications of this “permanently loose” policy stance for asset prices, investment strategy and market volatility.

The US municipal market registered strong performance in 2019, driven by record demand from individuals and constrained supply of tax-exempt issuance. Both factors grew out of changes legislated in the 2017 Tax Act. As we enter 2020, valuations appear tight versus Treasurys and fair versus corporates and risk assets generally.

2019 was a very good year for investors. Surprisingly, both offensive and defensive sectors did well, which is a marked about-face compared with 2018. We believe this is mostly due to a central bank shift to policy easing, especially in the U.S., coupled with a relatively steady economy.

In this piece, let’s do what Batista should have done – spend a few minutes focusing on the “stay rich” part of the equation. If you’re an investor who has already amassed great wealth and “won the game” what’s the right market approach that will help you keep (and potentially even grow) your wealth?

Advisors can provide tax-planning services to grow their client base and provide more value to the people who trust them with their hard-earned money.

The GMO Asset Allocation team has released its latest 7-Year Asset Class Real Return Forecasts

It has been a great year for equity investors. The S&P 500 index posted a 31% annual return, the Dow 25%, and the NASDAQ a spectacular 39%. More than $6T of equity paper wealth was created for domestic investors this year alone.

Although easing US-China trade tensions have renewed investor optimism about global economic growth, Franklin Templeton Multi-Asset Solutions’ Ed Perks and Gene Podkaminer still see some potential geopolitical headwinds on the horizon.

Ultimately, investors will awaken to the rising tide of defaults and downgrades.

Last New Year’s Eve, most would not have forecasted the extent of the gains experienced by the U.S. stock markets this year. On the heels of the worst December since 1931, the Federal Reserve’s (the Fed) 180-degree turn, from restrictive to accommodative policy, fueled the S&P 500’s roughly 30 percent surge and pushed the U.S. economic expansion into record territory.

Looking ahead, we believe the global economic environment will remain supportive for securitized sectors despite potentially slowing economic growth. In the US, we believe strong fundamentals, including robust wage growth and healthy household balance sheets, will provide solid support for real estate and consumer-related credit.

2019 was a very unusual year. Domestic growth whipsawed from strong (over 3%) to concerning (just over 1%). This volatility was compounded by both domestic and global headline factors: a very public trade dispute and very weak global growth.

Now is the season for forecasting as one decade turns into the next. Pundits and market prognosticators too often treat nowcasts as true market forecasts, which can be very dangerous for investors’ financial health. Our forecasts for the decade ahead rely on empirically driven quantitative models.

The problem with low interest rates for so long is they have encouraged the misallocation of capital. We see it everywhere throughout the entirety of the financial system from consumer debt, to subprime auto-loans, to corporate leverage, and speculative greed.

A brief monthly update on what's happening in the municipal bond market.

Every year, the markets provide us with lessons on prudent investment strategies. Many times, markets offer investors remedial courses, covering lessons it had taught in previous years. That’s why one of my favorite sayings is that there’s nothing new in investing, only investment history you don’t yet know.

Central bank easing and the cooling China-U.S. trade war have set the scene for a global economic rebound in 2020. Our forecast pushes the risk of recession into late 2021, giving equity markets modest upside potential for 2020.

As Mark Twain once said, history never repeats itself, but it does often rhyme. The House vote to impeach President Trump coming in mid-December of 2019 certainly feels like a couplet with the Clinton impeachment, which occurred in mid-December 21 years ago. Indeed, there are similarities, but also key distinctions.

The many gloomy predictions for 2019 did not come to pass, but can we be more optimistic for 2020? Franklin Templeton Fixed Income CIO Sonal Desai draws the key lessons from last year and outlines what we should expect for the year ahead and her main concerns, with political uncertainty top of the list.

Despite Sauron and Einstein’s failed attempts at unified theory, 2019 was simply the tenth year whereby interest rates were low and went lower, credit remained both cheap and plentiful, the economy was “good enough,” and those who can print money re-dedicated themselves to a willingness to print money. The logical conclusion to this set of events is to buy and hold U.S. equities. Drop the mic—again.