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CIP Quips

15 to 20 Percent

Did You Know...

By definition, History is defined as the study of past events. History is studied to help one understand the past, sometimes in an effort to predict the future or to avoid mistakes. 

The narrowing gap, or spread, between interest rates on short-term and long-term government bonds has historically signaled the risk of a recession. According to the San Francisco Fed., yield curve inversions have “correctly signaled all nine recessions since 1955 with only one false positive in the mid-1960s, when an inversion was followed by an economic slowdown but not an official recession”. A recession is a significant decline in economic activity, normally measured by two consecutive quarters of negative economic growth as measured by GDP.

Presently, the economy is showing strength and corporate earnings are strong. The Federal Reserve has signaled that they will continue unwinding their balance sheet and continue with raising interest rates. Alas, there is still plenty of concern. 

The Fed meeting minutes from June 13th mentioned that participants were presented with a Fed Staff paper suggesting better recession indicators than the spread between the 10-year and the 2-year treasury notes.  The research paper recommended looking at the near-term forward spread instead, which shows the difference between the current implied forward rate on treasury bills six quarters from now, and the current yield on a 3-month treasury bill.  This indicator suggests that the odds of a recession in the next year is about 15-20%.

Since the 1920s, the U.S. economy has been in a recession about 18% of the time.  Therefore one could say that the indicator suggests the odds of a recession over the next year are about the same as in an average year, as stated in the article “What are the chances of a recession? Not what you’d think.”

What we are thinking:

What will history teach us this time around? Is it too late to change directions?

 At Roosevelt Investments our investment process starts by evaluating current credit market conditions to determine optimal construction.  This includes identifying sources of risk, setting effective risk limits, yield curve positioning, sector allocation, diversification and duration management.  Yield and spread analysis is an important part of our credit analysis. Our fixed income team diligently monitors opportunities to maximize potential differences between maturity horizons. CIP is an attractive solution for income investors who are looking for conservative allocations and additional yield an either a low rate or rising rate environment. Let us show you how!







This information is intended solely to report on investment strategies and opportunities identified by Roosevelt. Opinions and estimates offered constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. This material is not intended as an offer or solicitation to buy, hold or sell any financial instrument. References to specific securities and their issuers are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. Please contact us at 646-452-6700 if there is any change in your financial situation, needs, goals or objectives, or if you wish to initiate any restrictions on the management of the account or modify existing restrictions, or if you would like to request a copy of our Code of Ethics. Our current disclosure statement is set forth on our Form ADV Part II, available for your review upon request, and on our website, www.rooseveltinvestments.com.

Past performance is not a guarantee of future results. Indices are unmanaged and cannot accommodate direct investment. Themes assigned as per Roosevelt Investments’ evaluation. Risk tools may include cash or other securities that we believe possess a low or inverse correlation to the overall market.


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