NEAM Insights

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

The UK’s Brexit referendum was held two years ago on June 23, 2016. The UK gave formal notice of its decision to leave the European Union (EU) on March 29, 2017 and following the two year notice period required by EU law, the UK will legally leave the EU on March 29, 2019. Since the referendum result was close (52% of voters in favour of leaving) and the precise terms of exit were not a feature of the referendum, it’s been a tortuous journey to date and there’s likely to be more uncertainty before Brexit takes its final shape. 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

Background In late 2014, the Federal Reserve assembled the Alternative Reference Rates Committee (ARRC) and assigned it the task of identifying a new proxy for U.S. Dollar London Inter-bank Offered Rate (Libor) and devising a transition plan to the chosen rate. Read More

Recently, we explored how tax changes have influenced the attractiveness of tax-preferenced investments and the impact of accounting regimes and taxes on rating agency and regulatory solvency assessments.1 This Perspectives addresses the impact of these tax changes on risk tolerances and asset allocation when taxes are explicitly considered in the decision process. 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

The long-run rate of inflation in the U.S. is roughly 3%, yet we haven’t had sustained inflation readings in that range since the mid-1990s. There are many causes for this, not the least of which is the most significant economic downturn in several decades and perhaps since the Great Depression. Still, after nine years of exceptional and stunningly accommodative monetary policy, it’s a bit surprising that central banks are still working toward achieving a 2% inflation rate. Read More

Investors are becoming increasingly concerned about prospects for higher levels of both inflation and interest rates, resulting in the recent spate of volatility and a correction in equity prices (a 10% decline from its 52 week high). Major central banks, led by the Federal Reserve in the United States, have begun to take their collective foot off the gas with regard to the use of their balance sheets to support prices of securities in the capital markets. Investors are asking: how will the reduced buying by major central banks impact the demand for fixed income securities, interest rate levels and the shape of yield curves? Read More

Background The first year of the Trump presidency turned out to be a surprise in several ways, but perhaps the most notable was the complacency and lack of volatility that characterized both interest rates and risk asset prices in general. For one fleeting moment after the 2016 election, markets convulsed, but after that moment they haven’t looked back. During the year, NEAM focused on the potential impact on interest rates of four distinct priorities for the new administration: 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