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CHRIS: Chris Bolisay here on USAA’s trading room floor. Municipal bonds have delivered
attractive returns in 2014. So I’m here with John Bonnell to gather some insight.
John, what’s helped contribute to that? JOHN: I think it’s a couple of things Chris,
if you think back to the end of last year nobody was predicting a strong year for bonds
in 2014. But yet that’s exactly what we’ve experienced. And a couple of reasons, one
there’s still some uncertainty with how strong the economy really is and number two,
I think we’ve experienced a bit of a flight to quality in treasury bonds because of all
the geopolitical risk in the world today. CHRIS: So, the flight to quality sounds like
high demand and I’ve heard there’s low supply. Do we see that turning around?
JOHN: That’s right the technicals meaning supply and demand factors in the municipal
market are very favorable for muni bond prices and it’s because the new issues supplies
has been very low compared to historical norms and at the same time, demand has been strong
because on a relative basis, munis look very attractive to other fixed income alternatives.
CHRIS: Okay so looking out the rest of the year into the future, what should investors
be doing? JOHN: Well, I think we are anticipating a
lower for longer interest rate environment. But, what’s happen so far this year points
out that it’s very difficult to try to predict long term interest rates. So, even if interest
rates rise over time, investors should remember that the reason they’re investing in bonds
in the first place is for the income. And so if interest rates rise gradually, their
income rises over time as well. CHRIS: Okay, John, thank you.
JOHN: You’re welcome. CHRIS: As always, if you have questions about
the markets or your personal financial plan, give USAA a call at 800-531-8722 or find us
usaa.com.