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Friday, June 29, 2018

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

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
6/22/18 1.83 1.93 2.11 2.33 2.56 2.65 2.77 2.86 2.90 2.97 3.04
6/25/18 1.80 1.93 2.13 2.34 2.54 2.63 2.75 2.83 2.87 2.95 3.02
6/26/18 1.79 1.93 2.14 2.33 2.53 2.63 2.75 2.84 2.88 2.95 3.03
6/27/18 1.79 1.93 2.10 2.33 2.52 2.59 2.71 2.79 2.83 2.90 2.97
6/28/18 1.76 1.93 2.11 2.33 2.52 2.60 2.73 2.81 2.84 2.91 2.97

                                                                                      Source: U.S. Department of the Treasury, as of 06/28/2018 



Time to Add Call Protection to Portfolios?  A Historic Perspective…

It’s time to start talking about call protection.  Halfway through the year and the Fed has raised rates twice with an expectation of at least one maybe two more hikes.  The yield curve is responding by continuing to flatten to a meager 33 basis points between 2 year and 10 year Treasuries.  If the Fed continues to hike an economic slowdown and curve inversion is a possibility.  Although we cannot predict exactly the extent of the flattening or inversion of the yield curve we can use history to show us the impact on yields as the graph below shows. It might be time to start thinking about what to do with the portfolio in preparation for a possible inversion instead of a rising rate environment. Generally, adding duration and call protection will help overall performance:  Bullets are a natural fit for this time, discounted callables are another way to add some additional yield still with a bullet mentality, or a  5y 2y 1x callable where 3.00% is still possible with a wider spread to bullets than we have seen recently.


 
                                                                                                                                                        Source:  Bloomberg
 

                             



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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