Though defaults have been higher than average during the past two tumultuous years, our Unconstrained Fixed Income strategy has provided the greatest returns this year yielding over 16 ½% gains and soundly besting the approximate 10% and 3% returns for our U.S. and International stocks through July 18th.
At the end of June, the U.S. Treasury 10-year bond yield stood at 1.49%, a level not seen in a very long time. As government bond yields have turned negative throughout Europe, rates in Asia also dropped to new lows offering investors little return with significant risks should rates rise in the coming years. The problem with ultra-low and negative yields is that when rates eventually do increase, bond prices will decline - and significantly so for longer maturity issues.
The surreal phenomenon of negative yielding government bonds is becoming more of a norm among global fixed income markets. We continue to avoid investing in low-yielding sovereign or corporate investment grade bonds believing it effectively guarantees failure for our clients' retirements as 0 - 2% returns will not keep up with inflation, taxes or our clients' personal income needs. As such, we are finding the most value in the high yield market, which though more volatile, offers the potential for sound returns and better protection in a rising interest rate environment.
As always, we appreciate your continued trust and confidence. Please do not hesitate to contact your Senior Client Advisor, or me directly, should you have any questions regarding our investment strategy, market/economic outlook or your personal financial circumstances.
Sources: US Treasury, Federal Reserve
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