In the News:
Following a number of speeches by Federal Reserve members last week, Bloomberg news highlighted that policy makers could be looking to shorten the average maturity of their treasury holdings. The Fed currently does not actively manage the duration of its reinvestments. Shifts in what types of securities the Feds hold on its balance sheet could have big implications for individual investors. A move away from longer-dated treasuries could put downward pressure on short term rates, but a shorter-duration portfolio could give the Fed ammunition should a financially stressful economic event occur. Recall that the Fed was forced to sell its short term treasuries in order to purchase longer term debt during the financial crisis. We believe the resultant downward pressure on treasury bond yields helped support the economy by lowering borrowing costs.
By opting not to reinvest proceeds of securities as they mature, the Fed is trying to normalize its balance sheet, currently at about $3.9 trillion, by reducing its bond holdings by about $50B per month. In late January Fed Chairman Powell stated that “The question of the ultimate composition of our balance sheet in the longer run is a very important one. “ While the financial markets seem to us to have overlooked the economic reports that caused the December 2018 stock market decline, the Fed did not, communicating the adoption of a more dovish stance in interest rate policy as well as hinting that its balance sheet reduction efforts may come to an end sooner than previously believed. We believe it is not far-fetched to think that the Federal Reserve is practicing good policy by trying to reload some of its lost ammunition.
What we are thinking:
The road to normal should be monitored closely. Last year we saw 10 year treasury yields reach highs not seen in years, but yields finished the year very close to where they began. Just as the Fed is taking a more cautious approach, we also believe a risk-managed approach in fixed income is warranted. We feel we have a unique perspective when it comes to fixed income and the generation of income. At Roosevelt, we believe in not taking excessive risks to generate income today that may jeopardize the ability of the portfolio to provide income in the future. To produce high levels of income, many portfolios assume a variety of different types of risks. We take a different approach. The Current Income Portfolio (CIP) seeks to benefit investors who desire high and reliable levels of income from an investment grade portfolio. CIP seeks to provide a substantial income stream by maximizing annual cash flows while preserving capital. 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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