William Maniscalco is a Senior Managing Director in Mesirow Wealth Management He provides comprehensive wealth management and investment management programs for affluent individuals families businesses and not-for-profit organizations Bill joined the firm in 1998 and has 34 years of industry experience He uses his expert knowledge in cash flow forecasting for retirement and college planning life…

Bill Robbins is a Managing Director and Wealth Advisor in Mesirow Wealth Management He specializes in comprehensive financial planning for individuals and families with a primary focus on asset accumulation college planning and/or retirement planning He also provides retirement plan solutions for small business owners Bill joined the firm in 1998 and has over 25 years of experience in the…

Yes high yield bonds’ true duration is… negative, When we first published this white paper in early 2021 we noted that all the analysis happened after inflation was subdued in the 1980s In the 13 cycles where Treasury rates increased high yield credit spreads also compressed and high yield bonds exhibited negative empirical durations and thus positive returns However we also noted that should higher rates be accompanied by higher inflation we…, FIXED INCOME IN RISING RATE ENVIRONMENTS¹ HIGH YIELD VS IG, ​Source Bloomberg & Credit Suisse We are always a bit befuddled when we are asked about the duration of our portfolio and how we “manage” duration We wonder which duration is of concern…the conventional measurement or the way our portfolio , empirically,  responds to changes in Treasury rates All the conventional measurements of duration—Macaulay duration modified duration effective duration option-adjusted duration and the like—are purely mathematical constructs which measure the , theoretical,  price response of a bond when rates rise or fall Though some of these adjust for the embedded call options in most corporate bonds they all ignore the most important feature of high yield bonds—the fact that default risk introduces large (and more important , variable, differences between promised cash flows and the expected cash flows that actually determine values of bonds Recently respected researchers at Bank of America/Merrill Lynch (BAML published a short note in which they systematically calculated the empirical durations of corporates of different ratings over a ten year period using weekly returns and the five year Treasury rate as the reference point…, up, 2   FIGURE 2 , EMPIRICAL DURATIONS BY RATING, Source Oleg Melentyev and Eric Yu Bank of America/Merrill Lynch High Yield Strategy September 4 2020 Note that investment grade bonds of all ratings do have positive empirical durations but high yield bonds actually have negative durations which become increasingly negative as we descend from BB to CCC High yield bonds are not immune to the mathematical fact that a more heavily discounted cash…, promised, cash flows which themselves change when rates are higher During the low-inflation era since the 1980s rising rates have generally occurred at a time when the economy is improving and a stronger economy means that expectations of default rates are falling Cash flow is more highly discounted but there is more expected bond cash flow to begin with when the economy is booming and this latter effect…, a high yield portfolio is actually a natural economic hedge,  to a high grade universe whose duration has been significantly lengthening in recent years Ten years ago the duration of the Barclays Aggregate was about 5 years Today it is 64 years  Will the robust inverse relationship between interest rates and high yield bond prices hold up in the future This turns on why rates might rise As noted earlier all of the analysis in this paper happened after…, gross,  expected default rate is 42% but if the bond defaults it will be converted to cash at a value of 40% of par…thus the , net,  default loss rate is the aforementioned  42% *(1 - 40% = 25%  The expected cash flow (expected coupon plus expected partial principal return in the event of default in year 1 is (8 * 958% + (40 *42% = 934 The expected cash flow in year 2 is (8 * 958% * 958% + (40* 42% * (1 - 42% = 895 And so on for years three four and five The total expected cash flow from this bond over its life is 1236 -…, highly,  variable For B rated bonds if we look at all five-year periods in the S&P default database the lowest quintile 5-year default loss rate is 102% the third quintile loss rate is 26% and the highest quintile 5-year default loss rate is 43% The investor and the market may believe that after rates have shifted up and the economic outlook has improved the forward-looking default loss rate has…, as if,  every manager responded to changes in rates as we have described herein Click and drag to resize ​ DOWNLOAD   FOR EDUCATIONAL INSTITUTIONAL AND INFORMATIONAL PURPOSES ONLY There can be no assurance that any performance or results based on examples of duration strategies discussed herein will be achieved and materially different results may occur Please see the disclosures at the end for…

Yolanda Moore is a senior operations associate in Mesirow Currency Management Her primary responsibilities include oversight and management of counterparty trade confirmations reports and settlement processes Yolanda has more than 30 years of operational experience in foreign exchange Prior to joining Mesirow she was a senior trade support analyst for ABN AMRO and foreign exchange operations…

Each fall many of our clients’ children and grandchildren begin their college experience As we guide these families from the accumulation phase through the use of their college savings we’ve found that it has been helpful to review the features of 529 College Savings Plans and offer reminders on how to take advantage of these benefits Of course each family’s circumstances are unique and we…, 529 College Savings Plans (“529 plans”, 529 plans are state-sponsored investment accounts that offer tax advantages to parents and grandparents saving for college Each account has an “owner” (typically the parent or grandparent and a “beneficiary” (the student Investments within a 529 plan grow tax-free and withdrawals for qualified college costs can be withdrawn free of federal income tax Additionally many states offer state tax…, Common questions as students prepare for the fall semester, What expenses are considered qualified for the purposes of tax-free 529 withdrawals, Qualified expenses include Tuition and fees paid directly to the school Books supplies and required equipment Textbooks must be on the required reading list Computers and peripheral equipment software and internet access as long as they’re used primarily by the student Computer software must be educational in nature Room and board as long as the student is enrolled half time or greater 100% of on…, When must funds be withdrawn to be considered “qualified”, To qualify for tax benefits 529 withdrawals must be made in the same calendar year (not academic year as the year the payment was received for the education expense It is important to consider the time frame necessary for processing as a withdrawal made during the year must be used for an expense paid prior to year-end For example a withdrawal processed in December for an expense paid in January…, What is the impact of a non-qualified withdrawal, Withdrawals that are not used for qualified expenses may be subject to federal and state income taxes In most cases the “earnings” portion of the withdrawal will be taxable as ordinary income and subject to a 10% federal income tax penalty Additionally non-qualified withdrawals may be subject to state taxes and the recovery of a state tax deduction filed for in previous years (for Illinois…, How can I keep good records, While the 529 account provider will provide an annual statement detailing the allocation between the account’s “basis” (contributions and “earnings” it’s the responsibility of the account owner to maintain records documenting the student’s expenses and withdrawals Account owners should keep all receipts for educational expenses and segregate the qualified expenses from non-qualified costs…, What if anything is left over, In the event that a 529 account has a balance at the conclusion of the student’s college term an account owner has a number of options The account can remain invested for the student’s graduate school or other post-secondary education The account owner can change the account beneficiary to another family member at any time This change can be used to transfer the account balance for a sibling’s or…, Published March 2025, 1 Illinois limits the annual state tax deduction to $10000 for single taxpayers and $20000 for married taxpayers filing joint returns 2  https//wwwsavingforcollegecom/compare_529_plans/plan_question_ids%5B%5D=437&page=compare_plan_questions 3 https//stwservecom/secure-act-2-0-allows-for-rollover-of-unused-529-plan-funds-to-a-roth-ira/ Before investing in an out-of-state 529 college savings…

Your financial plan and investment portfolio is likely made up of a variety of different types of assets which you probably review with your wealth advisor at least annually if not more often Insurance policies can play a critical role in your financial plan but they are often overlooked, Whether it is life health disability long term care excess liability or property and casualty insurance plays a major role in a comprehensive financial plan Specifically when it comes to life insurance our clients often ask “How much insurance coverage should I have” “Should I keep my old policy” “When can I stop paying premiums” We recommend that you review your life insurance policies —…, Types of life insurance, There are several different kinds of life insurance, Term insurance , This is the lowest cost life insurance you pay a level annual premium for a fixed death benefit The term expires after the chosen - number of years (ie 1020 and 30-year term, Whole Life insurance,  Compared to term insurance these policies are more expensive but build up cash reserves resulting in a permanent asset  As long as premiums are paid the policy should not expire  The cash value is invested in the general portfolio of the insurance carrier  Eventually the cash value can be used to pay premiums and receive an income stream, Universal/Indexed Universal Life/Variable Life insurance,  With these types of policies your premium is higher than term and the cash value builds up just like a whole life policy except that you can direct how the cash value is invested The choices vary by product but allow investment in the equity bond and cash markets  All these policy types can play a role in a financial plan The key is making sure the policy is performing as expected and the…, Five reasons to review your life policy, 1 | Whole life premiums are continuing well past the estimated payment duration Since whole life policies are invested in the insurance company’s general account the crediting rate that they earn is based on the insurance company’s ability to earn interest on that account These general accounts are conservative fixed income portfolios Although interest rates have been higher lately they have been…, When was the last time you reviewed your policies, We recommend that our clients review their life insurance policies and their beneficiaries every three to five years Questions to ask during that review include Is this still the right amount of insurance coverage Is this still the right policy What am I trying to accomplish What do I need versus what I already have What are my options As your needs change over time it is important that you work…