High Grade Review and Outlook 2nd Quarter 2014
The commentary reviews the previous quarter and discusses our outlook and investment approach for the next quarter for our high quality taxable fixed income strategies for endowments, foundations and other non-taxable entities.
- We entered the 2nd Quarter with an overweight to spread sectors and an underweight to Treasuries and agencies.
- As the yield curve flattened and 10-year Treasury yields approached the bottom of their recent trading range, we began to reposition portfolios from a barbell curve strategy toward a bullet structure.
- The acceleration of the economic data, in the context of Yellen’s statement that the Federal Reserve will maintain a highly accommodative policy for a very long time, raises the risk that the Fed will lose control of growth and inflation expectations over the longer-term.
- We believe the second half of the year is more likely to witness a rise in longer term rates, though not a dramatic sell-off, and an increase in yield curve steepness.
- As municipal/Treasury yield ratios have declined, our allocation to municipals is at its lowest levels in some time and we have used those funds to reduce our underweight to Treasuries.
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