Wednesday, May 30, 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
5/22/18	1.73	1.93	2.13	2.34	2.59	2.73	2.90	3.02	3.06	3.14	3.21
5/23/18	1.76	1.92	2.11	2.29	2.53	2.67	2.83	2.95	3.01	3.09	3.17
5/24/18	1.74	1.91	2.09	2.28	2.50	2.65	2.82	2.93	2.98	3.06	3.13
5/25/18	1.70	1.90	2.07	2.27	2.48	2.60	2.76	2.88	2.93	3.01	3.09
5/29/18	1.77	1.93	2.06	2.17	2.32	2.43	2.58	2.71	2.77	2.87	2.96

                                                                                      Source: U.S. Department of the Treasury, as of 05/29/18  

What a Crazy Week for Bonds…

If you like highly volatile markets, you have to love the bond market this week. After the long holiday weekend, crisis in Italy pushes U.S. bond yields to their lowest of the year, with the 10Y as low as 2.78%, after hitting their high of 3.11%, just 2 weeks earlier.This morning, the 10Y is back to 2.87%, and all fear about the Italian economic crisis appears to be over. We are back on track, watching the Fed talk rates higher and confirm plans to continue to raise short term interest rates as a result.
 
Jared Dillon is a former Wall Street trader and currently writes about the markets in “The 10^th Man” and the “Daily Dirt Nap” as well as many successful books and podcasts. He recently wrote a column called “When Rates Go Up, Stuff Blows Up”, in which he offers the following comment: “Rising interest rates don’t necessarily cause a recession, per se, but they are usually found at the scene of the crime.” Portfolio managers should keep this in mind as the Fed plans for 2-3 (some say 4?) more interest rate hikes over the next few months. We sometimes tend to forget that credit cycles  follow interest rate cycles, and as rates peak, oftentimes the loan credits do as well. We have mentioned this before, but it bears repeating, “the credits you add to your loan portfolio at the top of the rate cycle are generally the best they will ever be.” That is, credit quality tends to deteriorate as interest rates decline and the economy enters recession.
 
This is why, as difficult as it can sometimes be, you should always maintain a portfolio that reflects current market yields. As rates increase, a buying program that continues to invest in bonds that reflect current rates will be highly valued as rates eventually turn south. Sell less productive investments as needed to continue to be an active market participant. And when the markets are highly volatile, as they are this week, it is a great opportunity to sell these lower yielding assets and invest in higher returns.  
 
Call us if we can assist you in any way.
Thank you for your continued business.
 

                                        

        

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