| Friday, April 26, 2019 |
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|---|---|---|---|---|---|---|---|---|
| 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 |
| 04/19/19 | 2.44 | 2.42 | 2.47 | 2.44 | 2.38 | 2.36 | 2.38 | 2.46 | 2.57 | 2.78 | 2.96 |
| 04/22/19 | 2.44 | 2.44 | 2.47 | 2.46 | 2.38 | 2.36 | 2.39 | 2.49 | 2.59 | 2.82 | 2.99 |
| 04/23/19 | 2.43 | 2.45 | 2.46 | 2.43 | 2.36 | 2.34 | 2.36 | 2.46 | 2.57 | 2.81 | 2.98 |
| 04/24/19 | 2.42 | 2.44 | 2.46 | 2.42 | 2.32 | 2.28 | 2.32 | 2.41 | 2.53 | 2.76 | 2.94 |
| 04/25/19 | 2.43 | 2.43 | 2.46 | 2.42 | 2.33 | 2.29 | 2.33 | 2.42 | 2.54 | 2.76 | 2.94 |
Buying out on “The Curve”, Revisited!
In January, we pointed out that it was hard to “time” the market when managing an investment portfolio. As you recall, in November 2018 the ten-year treasury was yielding about 3.21% and everyone was making predictions on the number of Fed moves to come in 2019. Most were calling for at least three additional moves and some were even anticipating four.
By the middle of January, the ten year treasury yield had dropped to 2.75% and everyone seemed convinced that it was just about ready to snap back to the 3.20’s. In the January 18, 2019 PMR we stated:
“Is the Fed finished with its latest round of tightening? We don’t know, but it is beginning to appear as if it might be. In any event, it doesn’t really matter, a least in terms of managing the investment portfolio. Assuming your current balance and investment portfolio is in line with most peer groups, now is the time to add bonds “out on the curve”, somewhere in the ten year range or even longer.”
We point this out, not to say we told you so, but to reiterate just how difficult it is to accurately predict rates. In fact, since we can’t accurately predict rates, we wholeheartedly advocate “cost averaging”.
The strategy is the same today at it was then, and it is simple. Buy out on the curve, if rates move down you win. If rates move up, so what, keep cost averaging and buy the “new” ten year rate with the next purchase. A 2.88% yield captured now will remain on the books long after the current overnight rate of 2.5% is a memory (when the Fed does begin to ease).
A great “compromise” between a ten year (or so) security and a shorter choice is the 15 year 3.5% FG G18723 MBS outlined below. The duration is 4.1 years and the yield is 2.86% at the current pricing speed. See the details below, which clearly illustrates the cashflow and “behavior” if rates change. Call if you have questions, or if you have interest in this bond or one like it.
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.
•Not FDIC Insured •No Bank Guarantee •May Lose Value