Market Review and Outlook 2nd Quarter 2005
Our earlier Market Commentaries have observed that the existing interest rate structure in the bond market is not consistent with a growing economy, unrelenting tightening by the Federal Reserve, record trade and budget deficits, the prospect of a lengthening military commitment overseas, an overheated housing market, and rising commodities prices. Accordingly, we have maintained a modestly defensive duration posture with respect to bond investments in our portfolios. Those issues notwithstanding, the second quarter brought a shift in the psychology of bond market participants. Although the expectations for continued economic growth remain, the expectations of sharply higher interest rates have waned dramatically.