Jeff Klingelhofer & Nicholos Venditti – Bond Risk

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Just about everywhere you look, America is awash in debt. U.S. households recently set a new record of indebtedness, $12.7 trillion, more than they owed at the height of the credit bubble in 2008.

But context is everything.  As last week’s WEALTHTRACK guest, Cornerstone Macro’s top ranked economist, Nancy Lazar told us, consumer debt is down significantly relative to disposable personal income at 88% of income vs. 115% in 2008, and savings rates are up.

Corporate debt is another story. It too has been growing significantly in recent years, but unlike more thrifty consumers, it is accelerating at a faster rate than revenues.
Corporate debt is more than 90% of revenues, a record during an expansion. And despite historically low interest rates, corporate interest expense is barely off its all- time high.

What about government debt? In 2016 total U.S. national debt was estimated at $22.5 trillion. The federal government accounted for the lion’s share, about $19.5 trillion. States had a little over $1 trillion and local governments nearly $2 trillion in debt. Again, context is everything.  The last 10 years have seen federal debt skyrocket from about 60% of GDP in 2005 to over 100% of GDP, while state debt has held steady at 6%, and local government indebtedness has increased slightly, to a little over 10%.

There are always outliers. One of the biggest is in the municipal bond market. The largest issuer of tax free muni bonds by far is the U.S. territory of Puerto Rico.

With over $70 billion in bond obligations and $50 billion in unfunded pensions, Puerto Rico cannot meet its obligations and has gone to bankruptcy court. The outcome is yet to be determined.

This week’s WEALTHTRACK guests each manage several top rated mutual funds,  investing in multiple types of bonds using different strategies. They also work together on the Fixed Income Team at Thornburg Investment Management.  Thornburg is a WEALTHTRACK sponsor but their collective performance speaks for itself.

Jeff Klingelhofer is a portfolio manager on several Thornburg funds including its 5-star rated, Thornburg Limited Term Income Fund which uses a laddered strategy, investing in bonds with staggered maturities. He also manages the 4-star rated Thornburg Strategic Income Fund, which has a flexible mandate to invest anywhere in the world and in any kind of income producing security.

Our other guest is Nicholos Venditti, portfolio manager for several municipal bonds funds including the 5-star Thornburg Limited Term Municipal Fund, again using a laddered portfolio, and the 4-star Thornburg Strategic Municipal Income Fund which also has a broad, flexible approach.

We will discuss the state of the fixed income markets as a whole and the condition of different sectors specifically, as well as where they are investing and what they are avoiding. We will also get their very strong views on why the bond market does not lend itself to passive index investing. Yes, they are defending their profession but they also point out some key differences between stocks and bonds.

If you miss the show on television this week you can always catch it on our website.  We also have an EXTRA report from another firm about why active is an advantage in bond investing. As always, we welcome your feedback.  Click on the Contact Us link on our website, or connect with us on Facebook or Twitter.

On this Memorial Day weekend, please take a moment to remember those who have lost their lives in military service to our country. They sacrificed so that we could celebrate a holiday in freedom and peace with our loved ones.  Make the week ahead a profitable and a productive one.

Best regards,


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