4Q 2019 Review – Total Return Taxable Fixed Income

During the Q4 of 2019, Treasury yields rose in the maturity range of two years out to thirty years, with the biggest increase being the yield for the 10-year. As of December 23, the 10-year Treasury had risen 24.5 bps to 1.911%. The Fed did elect to lower the fed funds rate again at the end of October, to 1.50%–1.75%, which caused Treasury yields shorter than one year to decline and marked the third rate cut since July. The steepening yield curve during the quarter benefited our portfolios as we were positioned defensively, which cushioned the blow of rising yields.

At the most recent FOMC meeting in December, the Fed signaled that they will look to be on hold as markets digest the three previous cuts. The statement accompanying the meeting continued to describe growth as “moderate” and unemployment as “low.” We expect the Fed to remain data-dependent going forward as they look to navigate changing economic conditions.

With the Fed on hold and the inverted yield curve behind us for now, we are continuing to manage portfolios defensively, as we expect rates to continue trending higher into next year. While being defensive hurt us earlier in the year, the tide has begun to turn; and portfolios have benefited as yields have gone higher. We will continue to be conservative in a low-interest-rate environment and look to extend durations and take advantage of market conditions as opportunities become available.