High yield taxable bonds started off the year with a bang, generating a total return of 5.99% (752 bps of excess return).
We are starting to see investors reaching for yield again which is somewhat troublesome to us and we advise caution in high yield.
In the municipal space, total returns were solid and when you factor in the tax benefits clearly outpaced most of their fixed income brethren. Our theme of quality underperformed as a bevy of recent press articles about how “cheap” municipal bonds are drew in the lemmings. Here too we advise caution. It is my belief that the strains in the municipal market are much more severe than anything in the recent past and a period of above average defaults can not be ruled out.
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