High Grade Review and Outlook 2nd Quarter 2015
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.
- Bond yields moved higher in the quarter as global growth improved and markets continue to anticipate an increase in the fed funds rate later this year, though events in Europe and Asia are currently challenging that expectation.
- Bond bears may end up disappointed: Although the employment picture is improving, core inflation remains below the Fed’s target, while the IMF recommends the Fed should delay any rate increase.
- Though spreads may see some widening among a reduction in monetary stimulus, we still expect corporates to outperform as the economy and corporate balance sheets continue to improve, especially among financials where regulation and healthy earning are positives for the sector.
- We are decreasing the TIPS position we built at attractive prices at the beginning of the year as global forces begin to conspire against further inflation, while increasing our exposure to the cheaply valued municipal sector, an area that has outperformed in rising rate environments.