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We thought it would be a nice time to check in on the yield curve and see what we can glean. We can see in the chart above that the curve has moved to un-invert itself (compare the 8/27/2019 line to the 11/29/2019 line). Many may have noticed that their fixed income positions have posted significant gains (with respect to historical fixed income performances) in 2019. Much of that has to do with the price movement associated with the dropping of yields over the past year. In fixed income, when yields drop bond prices appreciate.


What does this mean for the future? This is less clear. The Federal Reserve has stated that it wants to keep short-term rates steady for a bit. But the Federal Reserve does not control the whole of the curve, only the very short end. At this moment interest rates are low, with the 10-year Treasury having dropped 1.2% in yield over the last year. This may stay steady, or it may rise slightly. But for rates to go lower there will have to be significant economic disruption on the horizon. Fixed income is held for two reasons in a portfolio: to provide for income and to provide a volatility dampener against significant equity moves. It is rare to see fixed income up this much when equity is also jumping. Don’t expect this pattern to repeat in the future.