August 1st, 2019

By Mark R. Anderson, CFA

A dovish-leaning Federal Reserve supported risk markets during the second quarter as investors largely shrugged off the ongoing trade war and heightened tensions in the Middle East. Bond investors enjoyed favorable returns across most sectors as the Bloomberg Barclays Aggregate index gained 3.08% on the quarter, led by a strong performance in the corporate sector. Spread overweights in Bank and Finance and good security selection within Industrials proved beneficial for our portfolios, while our overweighting in the ABS sector detracted a bit from our performance. We do believe, however, that the market for risk-taking may have gotten a little ahead of itself and we are looking to trim some corporate exposure as we enter the third quarter.

Treasury bond yields continued their rally, pushing the ten-year yield below 2% for the first time since November of 2016. The 10-year benchmark treasury yield fell almost 40 basis points to 2.01%, while the 2-year note dropped 50 bps in yield to finish the quarter at 1.76%. There remains a slight inversion in the 3-year part of the curve, which we are now underweight across portfolios. We feel the bond market has done some of the easing for the Fed, as U.S. Treasury yields are almost 90 bps lower than a year ago.

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