The year-to-date equity returns in well-allocated portfolios should more than make up for last week’s move in Treasuries.
-James Camp, managing director of fixed income, Eagle Asset Management
· The impetus for last week's move likely was the mostly positive results of the Fed’s so-called stress tests on the nation’s leading financial institutions as well as a seeming resolution to the Greek sovereign-debt issue.
· The new range for 10-year Treasuries is likely to be 2.10 percent-2.40 percent.
· The selloff may be prolonged, but shouldn’t be surprising given the significant rally in risk assets (e.g., stocks). Further, we believe the economy may start to sputter if the 10-year Treasury trades above 3.0 percent in the short to intermediate term.
· Even with inflationary energy prices (what we view as likely a short-term spike), we believe the Federal Reserve will stand by its previously stated plan of keeping short-term rates at or near 0 percent into 2014.
· Eagle programs have been light vs. their respective benchmarks in Treasuries for some time: a position we plan to maintain. Our focus – based on the belief the U.S. economy is on a slow-growth track while there remain areas of concern here and abroad – continues to be on high-quality bonds.
· Eagle Fixed Income programs are designed to be non-correlated to other asset classes. We are not happy about, but not alarmed by, a 30-basis-points move in Treasuries and suggest the year-to-date equity returns in well-allocated portfolios should more than make up for last week’s move in Treasuries.