NEAM Insights

Observed trends in leveraged loans and their securitized counterpart (Collateralized Loan Obligation or “CLO”) have garnered the attention of the financial press, politicians and rating agencies. While leveraged loan terms and quality have weakened, references to a potential repeat of the Great Financial Crisis (GFC) exaggerate the risk of contagion to the broader financial markets and underestimate the protections afforded to investors in senior CLO debt tranches. Read More

For the third quarter of 2018, the S&P 500 returned 7.2%, the best quarterly return since 2013. Fueled by the strongest U.S. macro backdrop since the Financial Crisis, the S&P 500 generated equally potent returns for July and August before momentum faded in September around renewed trade angst. Despite more subdued gains as the quarter progressed, the market achieved yet another all-time high by late September as well as earning the distinction of the longest bull market on record. In the wake of the tenth anniversary of the collapse of Lehman, volatility remained in the lowest historic quartile.1 Trade tension continued to impact the currency markets and the U.S. dollar strengthened, pressuring both the material and energy sectors. Outside of trade, healthcare impacted market performance positively as the sector contributed double digit gains within the S&P 500 for the quarter. Read More

Introduction Since 2010, stability in the euro area has been tested on several occasions as many peripheral nations have undergone periods of economic and market stress. In response, European authorities have put forward proposals to make the monetary union more resilient. Completing the Banking Union, developing the European fiscal framework and providing euro area stabilisation tools to deal with large asymmetric shocks are among the topics that have been discussed. A key issue that has been repeatedly mentioned has also been the lack of a euro area-wide ”safe asset.” Read More

In this issue of Quick Takes, we will look at how certain risk factors in the muni market have evolved over the past decade. The states were in reasonably good credit condition in early 2008, the municipal market was operating smoothly and the financial crisis was beginning to unfold. Now, once again we find ourselves late in a credit cycle, so it’s natural to ask how does today’s municipal landscape broadly compare to what it was pre-crisis? Read More

A historic change will soon be coming to the mortgage-backed securities market. On June 3, 2019, the Federal Housing Finance Authority (FHFA) plans to launch the “uniform mortgage-backed security” (UMBS), a single mortgage-backed security that will be issued by either Fannie Mae or Freddie Mac. The UMBS and the platform supporting it are intended to introduce greater efficiency, improve market liquidity and potentially pave the way for more substantive reforms to U.S. housing finance. Read More

The first quarter of 2018 unfolded with an eventful cadence. Equity price gains accelerated in January as robust earnings revisions and a sharp increase in inflows from retail buyers propelled the market higher. As a result of this momentum, the S&P 500 had posted a gain of over 5% by the end of the month. Read More

Written in January 2018 Returns for 2017 have been nothing short of spectacular, and records abound. The Dow Jones index recorded 70 plus record highs for the year, surpassing 1995 as the most ever. Similarly, the S&P 500 achieved 62 record highs last year and exhibited the longest streak documented without a 3% pullback.1 The market also exhibited uncanny linearity of returns with each month posting positive total returns for the first time in history.2 Volatility remained well below normal with the Chicago Board Options Exchange Volatility Index (“VIX”) tracking roughly half of its 25-year average. In brief, higher than average gains were achieved with lower than average volatility and greater linearity than is typical for equity risk assets. Correspondingly, using risk adjusted returns as measured by the Sharpe Ratio, returns relative to risk were the third best in history.3 Suffice it to say, it was a record year. Read More

Municipal Bonds First and foremost, muni bond income remains tax-free at the Federal level for individual investors, as it has been since the Federal personal income tax was established in 1913. Personal income tax rates though were adjusted modestly by the tax act, including a reduction in the highest marginal rate from 39.6% to 37%. From a technical perspective, this should have minimal effect on demand from individual investors who own almost two-thirds of the market. The corporate tax rate reduction (from 35% to 21%), however, increases the attractiveness of taxable bonds relative to tax-advantaged securities for most corporations. This includes banks, credit unions and P&C companies which combined, comprise one-quarter of the market. Conversely, proration rules for life insurance companies were modified, thus increasing the attractiveness of tax-exempts relative to taxables for this historically small segment of the muni market. Read More

In the third quarter, the S&P 500 gained 4.5% with each month generating positive returns, and extending the positive monthly return streak to encompass the entire year-to-date period. Tranquility and low volatility continued to characterize this period with the CBOE volatility index trending 40% below its lifetime average since the Presidential election.1 Late in the quarter, optimism around tax reform, as a means of reflation and improved economic growth, led to sector rotation and shaped investment style performance. Consequently, cyclical sectors outperformed, and value strategies outpaced growth for September despite having lagged for the 3Q in its entirety. Prospects for tax reform likewise ignited small capitalization company performance, enabling smaller businesses to outpace their large cap brethren for the 3Q and narrowing, but not yet closing, the year-to-date differential. Technology, the commanding leader for the year-to-date period, posted another strong quarter but did lose some relative ground throughout the month of September. Read More

Bond yields remain challenged in the major currencies and investors continue to face low yields across sectors in the investment grade universe. Few markets are impacted as severely as the European bond market where short-term underlying rates remain negative, slowly eroding earnings and almost guaranteeing a negative return. With this in mind the search for higher yielding (and positive) paper remains strong with many euro-denominated insurers considering non-traditional sectors such as high yield debt and others content to take exposure in a foreign currency. Read More