Ever since the topic of stimulus tapering was aired in June, the Fed has hastened to clarify its message: We’ll taper if and only if the data argues for tapering. Generally unimpressed with the U.S. recovery since then, the tough talk on tapering has noticeably cooled. The gradual reduction of the Fed’s bond-buying program is
One of the decision points that the Fed will encounter as it considers tapering its quantitative easing (QE) measures will be the relative strength of the housing market. One factor influencing this strength is mortgage rates. The interest rates on long-term (30-year) loans have risen above 4% on the back of the move to higher
It appears likely that the U.S. economy will continue to improve, keeping interest rates elevated and volatile. The U.S. recovery, despite higher taxes, generally rising interest rates, and broad-based budget cuts enforced by the federal sequester, appeared to remain on track through the second quarter, and we see the United States maintaining this course in
Given the climate of rising rates — and the degree to which rates have shown their ability to back up on fears of the eventual quantitative easing (QE) withdrawal — we believe term structure risk is best avoided in favor of sectors with more attractive risk-and-return profiles. In the second quarter of 2013, the debate
For several decades, the Barclays U.S. Aggregate Bond Index (known as the Lehman U.S. Aggregate Bond Index until November 2008) has been a central reference point for bond investors — a benchmark with widespread acceptance comparable to the S&P 500 or the Dow Jones Industrial Average in the equity world. The “Agg” comprises more than
Investors have been somewhat more cautious on the corporate-debt sector lately, with spreads — which measure the yield advantage versus Treasuries — tight by historical standards. To be sure, the financial health of corporations in the investment-grade space continues to be quite strong. However, in a slow-growth macroeconomic environment, we believe it may prove challenging
A number of developments in early 2013, including the long deadlock in Italian politics following the March elections, and the brinksmanship surrounding the EU bailout for Cyprus’s banking system, were notable specifically because of the muted market reaction they elicited. These events were generally understood to be negative developments on the world stage, but for
There is little question that interest rates would be significantly higher in the absence of Fed purchases. It is important to understand how potentially damaging a long-duration strategy could be in this environment. The duration, or sensitivity to rate movements, of a 10-year Treasury bond is about nine years, which means that an increase in
While the outlook for developed global economies is by no means rosy, investors have been so pessimistic and defensively positioned for so long that the absence of another crisis could be enough to coax cautious investors back into the markets. There is still an extraordinary amount of money on the sidelines or in safe-haven Treasuries,