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CHINA’S EFFECT ON EMERGING MARKETS DEBT

Emerging markets debt (EMD) spreads have moved above 4%, a level that has attracted buying interest in recent years. EMD is more sensitive to interest rates than the broad U.S. fixed income market. We continue to favor high-yield bonds due to their lower interest rate sensitivity.

PARSING PUERTO RICO

Puerto Rico’s debt crisis remains isolated and not symptomatic of the broad municipal bond market. Signs of contagion have not materialized and appear unlikely, although the probability of a default has increased. Puerto Rico bond prices largely reflect a default and are trading close to anticipated recovery values.

THE FUTURE IS ALREADY HERE

Due to still expensive valuations and low yields, we believe the current low-return environment could potentially persist for high-quality bonds for several years. Rising interest rate risk and still declining income generation pose an additional challenge.

WHAT DO BONDS SAY ABOUT GREECE

Bond market’s reaction to Greek events has been muted so far and justifiably so. Key safety nets put in place by the European Central Bank and policymakers in recent years support limited bond market impacts. The growth trend continues to dominate long-term bond prices and yields despite unfolding Greek events.

STATE OF THE STATES

Municipal supply has been a headwind for much of 2015 but appears to be tapering off ahead of a typical summer slowdown. Over the longer term, still tight state budgets may keep broader municipal supply restrained and limit growth of the overall municipal bond market, which could become a tailwind. Despite the constant flow of negative headlines, primarily from Puerto Rico, the overall credit quality of the municipal market appears to be on solid footing.

 
Results: 15 Articles found.
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