Q&A with Greg Kaplan, Director of Fixed Income for City National Rochdale

Q. With the stock market hitting new highs, it time to get rid of bonds?

A.  Absolutely not. There is always a place for fixed income in a portfolio. Since March of 2009, we’ve had a steady rally in the stock market. Yet fixed income has also provided some nice returns. The two are not correlated at the moment since both have been supported by low rates. We don’t expect market rates to rise much this year. While we do expect the U.S. Fed to start increasing short-term rates later this year, we expect them to do so slowly over an extended time period.

Q. What about high-yield, especially munis? What’s your outlook there?

A. There’s still a good opportunity in high-yield municipals. While most of the low-hanging fruit from 2014 is gone, there is still a good income play and credit trends are positive. On a tax-adjusted basis, relative to other producing investments, this is your best strategy.

Q. What about California municipals for a California resident?

A. For California residents, 100% of your bond portfolio should be in California municipals. The State of California as a credit has seen a solid, upward trend and the spreads on California’s General Obligation (GO) bonds has tightened steadily for several years. Local municipalities are also strengthening. We may see some headline risks, and we are watching oil prices, which could impact Kern County credits, as well as the port situation. But all in all, we feel things are looking very good with California municipals. City National manages about $5 billion of municipal bonds, and of those, about 60% are California credits.  

City National Bank, as a matter of policy, does not give tax, accounting, regulatory or legal advice. The effectiveness of the strategies presented in this document will depend on the unique characteristics of your situation and on a number of complex factors. Rules in the areas of law, tax, and accounting are subject to change and open to varying interpretations. The strategies presented in this document were not intended to be used, and cannot be used for the purpose of avoiding any tax penalties that may be imposed. The strategies were not written to support the promotion or marketing to another person of any transaction or matter addressed. Before implementation, you should consult with your other advisors on the tax, accounting and legal implications of the proposed strategies based on your particular circumstances.

Non-deposit investment products are not FDIC insured, are not deposits or other obligations of City National Bank, its subsidiaries and affiliates, and are not guaranteed by City National Bank and involve investment risks, including the possible loss of principal.