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We do not expect the weakness witnessed in 2013, but a difficult February 2015 thus far warrants another look at assessing interest rate risk, especially given the likely start of Federal Reserve (Fed) interest rate hikes later this year. Sector allocation, maturity exposure, time horizon, and whether interest income is reinvested or simply spent, all influence potential total returns during a potential bear market for bonds.


Puerto Rico municipal bond price volatility picked up following the strike down of the restructuring law, as the market began to price in the prospect of a broader default. The impact on the broader municipal market is still limited, as has been the case for much of the past 18 months. Default risk for Puerto Rico remains but we still find the broader municipal bond market attractive.


The negative bond yield club is exclusively comprised of European issuers reflecting the ongoing deflationary environment, poor growth expectations, euro currency risks, and negative overnight borrowing rates at selected central banks. Overseas-based bond investors may have several reasons to purchase bonds with negative yields, but, to no surprise, none of those are compelling enough for U.S.-based investors.​


A soft start for the U.S. stock market in 2015 once again illustrates the diversification benefit of high-quality bonds even at very low yields. Even in a low-yield environment, bonds provide a cushion as price movements, not yields, are the primary buffer to equity movements. An allocation to core bonds, in addition to more attractively valued high-yield bonds, may make sense for investors.


Recent central bank action has reinforced the “lower for longer” interest rate theme in global bond markets. This week’s Fed meeting may temper marketfriendly central bank trends, but seems unlikely to alter the current environment.

Results: 35 Articles found.
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