Peak Growth, Peak Inflation, Rates Rally
As a result of a modestly “less dovish” stance by the Federal Reserve (Fed), long Treasuries were up almost 6.5% in the second quarter after being down 13.5% in the first quarter. Long TIPS (Treasury Inflation-Protected Securities) were up over 8% compared to an 8.8% decline in the first quarter, as they benefited from the upside surprises seen in the consumer price index over the quarter.
In a remarkable turnabout, AAA rated nominal returns led the investment grade corporate market, primarily a function of AAA’s longer duration. BBBs led on an excess return basis, which is duration adjusted. In the high yield market, CCC’s continued to lead the way.
The tax-exempt side saw a continuation of the positive trends of the first quarter: phenomenal retail demand and relatively limited supply—all of which culminated in extraordinarily expensive Muni-Treasury ratios, extraordinarily low yields, and incredibly tight credit spreads.
The commentary is the opinion of the subadviser. This material has been prepared using sources of information generally believed to be reliable; however, its accuracy is not guaranteed. Opinions represented are subject to change and should not be considered investment advice or an offer of securities.
All investments carry a certain degree of risk, including possible loss of principal.
Past performance is not indicative of future results.