High Grade Review and Outlook: 3rd 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.
US interest rates and inflation fell for the quarter, led by decelerating US economic indicators, the appreciation of the US dollar, and the Fed’s decision not to raise interest rates.
- China’s decision to devalue its currency, following a deceleration of economic growth, unsettled both the Fed’s and investors’ global economic growth outlook, contributing to the Fed’s decision to keep interest rates at zero.
Outperformance within our strategies was generated through maintenance of our overweight in the corporate sector and longer duration to benefit from roll-down return, an increase in Treasuries, and an elimination of TIPS.
Although we remain positive on the outlook for corporate bonds, our current portfolio structure is predicated on continued sluggish US economic growth and the dollar’s growing strength. We continue to see value in corporate bonds as the economy continues to improve and Treasuries amidst what we view as excessive expectations of Fed tightening.