Thought Leadership

Market Review and Outlook 2nd Quarter 2005

July 12, 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.