Fixed-Income Markets
The government bond markets continue to be whipsawed by monetary and fiscal policy, and ever-changing assessments of the economy's strength. With the two-year note yielding less than 0.5% and the ten-year yielding less than 3.0%, we do not view Treasuries as good value, though they will continue to be a place to hide when there is macro risk. 

After a late year selloff, the municipal market has become slightly more attractive relative to Treasuries. Muni credit quality has come under the microscope with California and Illinois facing enormous budget challenges. However, a broad assessment of the landscape indicates that state and local tax revenues are beginning to increase as the economy stabilizes. 

The Fed has become the "leverager" of last resort and through quantitative easing is further expanding the size of its balance sheet. As a result, interest rates across the yield curve are likely to remain lower for longer than previously anticipated. With yields unusually low, we would look to a variety of other enhanced yield income sources to complement high-quality municipal positions, such as: emerging market debt, senior floating rate bank debt and mid-tier quality corporate debt. For investors willing to take on more volatility to build portfolio yield, we also favor energy master limited partnerships and equity income strategies blending higher yielding stocks, REITs and convertible and preferred securities.

David L. Donabedian, CFA, is chief investment officer of Atlantic Trust, the wealth management division of Atlanta-based Invesco.

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