A Note about Risk: The value of investments in debt securities will fluctuate in response to market movements. When interest rates rise, the prices of debt securities are likely to decline, and when interest rates fall, the prices of debt securities tend to rise. Lower-rated investments may be subject to greater price volatility than higher-rated investments. Longer-term debt securities are usually more sensitive to interest rate changes, the longer the maturity of a security, the greater the effect a change in interest rates is likely to have on its price. Bonds may also be subject to other types of risk, such as call, credit, liquidity, interest-rate, and general market risks. The municipal bond market may be impacted by unfavorable legislative or political developments and adverse changes in the financial conditions of state and municipal issuers or the federal government in case it provides financial support to the municipality. Income from the municipal bonds held could be declared taxable because of changes in tax laws. Certain sectors of the municipal bond market have special risks that can affect them more significantly than the market as a whole. Because many municipal instruments are issued to finance similar projects, conditions in these industries can significantly affect an investment. Income from municipal bonds may be subject to the alternative minimum tax. Federal, state and local taxes may apply. Puerto Rico and other U.S. territories, commonwealths, and possessions, may be affected by local, state, and regional factors. These may include, for example, economic or political developments, erosion of the tax base, and the possibility of credit problems. Bonds issued or guaranteed by foreign governments and governmental entities (commonly referred to as “sovereign debt”) present risks not associated with other types of bonds. The sovereign government or governmental entity issuing the debt may be unable or unwilling to make interest payments and/or repay the principal owed. No investing strategy can overcome all market volatility or guarantee future results.
Exchange Traded Fund (ETF) is a security that tracks an index, a commodity or a basket of assets like an index fund, but trades like a stock on an exchange. ETFs experience price changes throughout the day as they are bought and sold.
A general obligation bond (GO) typically refers to a bond issued by a state or local government that is payable from general funds of the issuer, although the precise source and priority of payment for general obligation bonds may vary considerably from issuer to issuer depending on applicable state or local law. Most GO bonds are said to entail the full faith and credit (and in many cases the taxing power) of the issuer, depending on applicable state or local law. GO bonds issued by local units of government often are payable from (and in some cases solely from) the issuer's ad valorem taxes, while GO bonds issued by states often are payable from appropriations made by the state legislature.
"Risk-on, risk-off" investing refers to situations where investors move to riskier, potentially higher-yielding investments and then back again to potentially lower yielding investments which are perceived to have lower risk. Periods of perceived low financial risk may encourage investors to take more risk ("risk-on"), while times of expected high financial risk may prompt investors to take less risk ("risk-off").
Yield is the annual interest received from a bond and is typically expressed as a percentage of the bond's market price.
The opinions in the preceding commentary are as of the date of publication and subject to change based on subsequent developments and may not reflect the views of the firm as a whole. This material is not intended to be legal or tax advice and is not to be relied upon as a forecast, or research or investment advice regarding a particular investment or the markets in general, nor is it intended to predict or depict performance of any investment. Investors should not assume that investments in the securities and/or sectors described were or will be profitable. This document is prepared based on information Lord Abbett deems reliable; however, Lord Abbett does not warrant the accuracy or completeness of the information. Investors should consult with a financial advisor prior to making an investment decision.