Short to intermediate Treasury yields declined throughout the first quarter as of March 19th, as the 30-year Treasury was flat at roughly 3.00%. The Treasury yield curve remains slightly inverted out to 5-years. This has benefited the Agency multi-step securities that we hold in portfolios, as we have witnessed an increase in calls as coupon steps are not justified by the inversion of the yield curve.
By the time this overview is received, the Fed will have made a decision to hold rates steady or hike the fed funds target rate. We expect the Fed Funds rate to remain unchanged at 2.25-2.50. In fact, the odds are higher that the next move will be a rate cut as opposed to a hike. The current rate-cut probability by the end 2019 is 25.1% versus a 0.5% chance of a hike, showing that market participants have major doubts on future rate hikes. We should receive additional clarity as to the direction of interest rates at upcoming Fed meetings.
With the uncertainty centered on the interest-rate environment, our portfolios have benefited from the inclusion of callable Build America Bonds, as they have provided a higher level of yield per unit of duration than shorter non-callable securities. Our taxable portfolios have also benefited from the inclusion of long tax-free municipals, as we have seen outperformance in that space. We will continue to manage portfolios defensively until more clarity on interest rates is revealed, and we will take advantage of opportunities as they become available.
Links to other websites or electronic media controlled or offered by Third-Parties (non-affiliates of Cumberland Advisors) are provided only as a reference and courtesy to our users. Cumberland Advisors has no control over such websites, does not recommend or endorse any opinions, ideas, products, information, or content of such sites, and makes no warranties as to the accuracy, completeness, reliability or suitability of their content. Cumberland Advisors hereby disclaims liability for any information, materials, products or services posted or offered at any of the Third-Party websites. The Third-Party may have a privacy and/or security policy different from that of Cumberland Advisors. Therefore, please refer to the specific privacy and security policies of the Third-Party when accessing their websites.
Sign up for our FREE Cumberland Market Commentaries
Cumberland Advisors Market Commentaries offer insights and analysis on upcoming, important economic issues that potentially impact global financial markets. Our team shares their thinking on global economic developments, market news and other factors that often influence investment opportunities and strategies.