Fixed Income Portfolio Management

We actively manage fixed income securities and adjust portfolio duration over a wide range, depending on our outlook for bond yields. We measure market risk using our Bond Valuation Model to determine how much bond yields vary from their "fair value." Fair value is an equilibrium yield level attained assuming the U. S. economy expands at a non-accelerating inflation rate. We have found that over a typical business cycle bond yields vary widely from their "fair value."

Having reached an extreme level (deviation from fair value), we use our Cyclical Bond Model to confirm directional forces behind bond yields.  These forces include inflation expectations, yield momentum, liquidity, and real yields.