Tuesday, May 22, 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
5/15/18	1.69	1.92	2.09	2.31	2.58	2.75	2.92	3.04	3.08	3.14	3.20
5/16/18	1.69	1.92	2.09	2.32	2.58	2.76	2.94	3.05	3.09	3.16	3.21
5/17/18	1.70	1.92	2.10	2.32	2.57	2.75	2.94	3.07	3.11	3.19	3.25
5/18/18	1.68	1.91	2.09	2.32	2.55	2.71	2.90	3.02	3.06	3.14	3.20
5/21/18	1.71	1.93	2.14	2.35	2.58	2.73	2.90	3.02	3.06	3.13	3.20

                                                                                      Source: U.S. Department of the Treasury, as of 05/21/18  

What Goes Up, Does (Often) Come Down

Since “rising rates” has been the mantra since Dec 2015, it may be worthwhile to step back and consider rates remaining relatively steady for the next few years, or, even decreasing!
 
This notion is blasphemous to those who think 4% annualized GDP is just around the corner and sustainable in the long haul.  Ponder the increase in overnight Fed Funds which began 29 months ago.  Most expect another 25 basis point move in June with perhaps another to follow in September and again in December.  If these moves happen the overnight funds will achieve 2.50%.
 
But where will the ten year treasury price by year-end?  It’s trading near 3.05% this morning.  One year ago it was 2.21% but that was after it traded higher at 2.60%.  Three moves from the Fed later, and it’s less than a half point higher than a 2017 high.  But when it was achieving that 2017 high the investing public was certain it was on a direct path to 3%.  It wasn’t and that 2.60% looked very good for most of 2017.
 
What’s the point?  If you’re trying to “time the market”…don’t.  Uncertainty is the hallmark of migrating markets.  Wishing is not a legitimate investment strategy but COST AVERAGING is.  Invest with discipline to a targeted duration even when rates are going up (because you never know when they’ll reverse course).  You’ll find this lowers your average book price over time.
 
There is a very good chance rates will be higher at the end of the year, but maybe not substantially so.  The degree of rate change depends on many variables.  Will the trade war be averted?  Will North Korea be corralled?  Will an infrastructure plan be approved worth trillions of dollars of improvements? Will employment continue to decline prompting wage inflation?  Will the Russian inquiry fizzle away or steam forward?  Who knows these answers?
 
Don’t be so sure rates are headed materially higher.  Do continue to build the investment portfolio in accordance with your overall game plan. Be disciplined, cost average, and execute your investment plan.
 


                              

                                           

        

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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