Wednesday, February 14, 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

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
2/7/18	1.36	1.55	1.73	1.91	2.15	2.33	2.57	2.75	2.84	3.01	3.12
2/8/18	1.32	1.55	1.73	1.91	2.13	2.32	2.57	2.76	2.85	3.03	3.14
2/9/18	1.31	1.55	1.73	1.89	2.05	2.26	2.52	2.72	2.83	3.02	3.14
2/12/18	1.35	1.62	1.82	1.93	2.09	2.30	2.56	2.77	2.86	3.02	3.14
2/13/18	1.34	1.59	1.80	1.95	2.10	2.30	2.54	2.74	2.83	2.99	3.11

                                                                                      Source: U.S. Department of the Treasury, as of 2/13/18  

What Worked in 2013/2014?

In 2013 we had a “taper tantrum” as Ben Bernanke announced the Fed’s, eventual, intent to taper quantitative easing’s bond purchases.  The bond market freaked-out as the 10yr Treasury more than doubled in yield and rose to a late-year high of 3%.  Once bond markets determined that the looming end of QE would not induce economic collapse, markets recovered, sanity surfaced and the 10yr traded steadily lower in yield (higher in price) for the next 2+ yrs. 

Fast forward to present day and bond market psychology looks a lot like the foggy, freaked-out 2013 status quo.  Back then, as markets regained composure, investors who took advantage of the pop in yields by acquiring bullets, discounted callables and discounted MBS were rewarded most of all.   There appears to be no reason to expect anything different today.  The sell-off in bonds may be exaggerated (as it was in 2013).   If rates fall from present levels, plain vanilla bonds with positive convexity and minimized negative convexity will post the best total return (nominal yield + price action).  Bullets, the chief candidate for this strategy, are a common topic in this column and readily quoted.  Because discounted agency callables are less often cited, here’s a small sample of what’s available.

Please call your CCB Capital Markets representative for a full discussion.

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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