Treasury yields dropped precipitously throughout the second quarter of 2019, with the biggest decline seen in the short to intermediate maturities. As of 6/20/19 the most sizable decline was in the 2-year Treasury, which dropped 54 bps to 1.724%, while the 30-year Treasury lagged this drop in yield but still declined 28.2 bps to 2.533%. The drop in yield across the Treasury curve was propelled by an increase in bets that the Fed is done hiking short-term interest rates and will instead start cutting as we approach year end.
Market participants all turned their attention to the 6/19/19 FOMC meeting for clues as to what we should expect for the rest of the year. While the FOMC left the target range for the fed funds rate unchanged at 2.25–2.50%, they did indicate a dovish bias. The dovish tone was accompanied by eight participants projecting rate cuts in 2019, as seen in the FOMC’s dot plot. The most significant change to the Committee’s statement appeared in the policy guidance section, which stressed increased “uncertainties” in the economic outlook and shifted the language from taking a “patient” approach to focusing on “taking the appropriate action to sustain the expansion.” We expect the Fed to remain “data-dependent” moving forward, and not allow market participants to force their hand in either direction.
Cumberland Advisors’ taxable strategy remains conservative in the face of uncertainty in the markets. We continue to be defensive, with a focus on capital preservation, while choosing opportunities to extend durations.
Daniel Himelberger
Portfolio Manager & Fixed Income Analyst
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