Wednesday, October 25, 2017
MANAGING DIRECTOR: Scott Carrithers   PORTFOLIO SALES AND SERVICE: Steve Panknin • George Morris • Jeff Goble • Chris Thompson • Sean Doherty Robert Brickson • Kevin Doyle • Lonnie Harris •  Mark Tranckino • Robert Schuyler  Tom Toburen • Josh Kiefer • Nicole Burczyk • Kelley Frye • Natalie Regan • Aaron Stoffer • Chuck Honeywell

US Treasury Market
Date	1 mo	3 mo	6 mo	1 yr	2 yr	3 yr	5 yr	7 yr	10 yr	20 yr	30 yr
10/18/17	.99	1.09	1.24	1.42	1.59	1.70	1.99	2.19	2.34	2.62	2.85
10/19/17	.99	1.10	1.25	1.41	1.58	1.69	1.98	2.18	2.33	2.60	2.83
10/20/17	.99	1.11	1.27	1.43	1.60	1.72	2.03	2.24	2.39	2.67	2.89
10/23/17	1.00	1.09	1.25	1.42	1.58	1.70	2.01	2.22	2.38	2.66	2.89
10/24/17	1.00	1.12	1.27	1.43	1.60	1.73	2.05	2.26	2.42	2.70	2.92

                                                                                                               

                                                                                                                Source: U.S. Department of the Treasury, as of 10/24/17   
 

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A Time for Everything …

Almost 4 years ago, on 12/31/13, the yields from 10-year Treasury notes and 30-year Treasury bonds topped-out at 3% and 4%, respectively, while the overnight target rate remained steady at 0 to 25 bps (for the 7 years between 12/16/2008 and 12/16/2015). 

Since then, the Treasury yield curve has flattened tremendously, as short yields are now 100 bps higher and long bond yields are 100 bps lower (see below).  The prevailing explanation of the flattening curve points to inflation that has fallen short of the FOMC’s 2% goal and market expectations that inflation will remain muted for many years to come.

Of course, policy makers see it differently, expecting the soft inflation recently reported to firm-up and requiring them to continue the process of normalizing the extraordinary degree of monetary accommodation.

Aside from this difference of opinion, the case for higher bond yields seems to be gaining momentum.  Accordingly, we believe fixed-income investors should be positioning their portfolios more defensively.  Given the flattening of the yield curve, now is a good time to consider switching-out of low coupon, long duration bonds into shorter duration, cash flow securities (see Short to Intermediate Duration Alternatives below).

This information is intended for institutional investors only. The material provided in this document/presentation is for informational purposes only and is intended solely for private use. Past performance is not indicative of future results. This material is not intended as an offer or solicitation for the purchase or sale of any financial instruments.

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