David Fleer
Bristlecone Value Partners, LLC
12301 Wilshire Blvd., Suite 320
Los Angeles, CA 90025 USA
Work 1-877-806-4141
www.Bristlecone-VP.com


All Quiet on the Q.E. Front

July 23rd, 2014

Financial markets continued their steady ascent in the second quarter.  Both the Dow Jones Industrial Average and the S&P 500 Index set new all-time highs, while the tech-heavy Nasdaq Composite finished the quarter a mere 13% below its own record high (reached in the heady days of March 2000).  Meanwhile, bonds continued to confound investor expectations; the yield on the 10 year U.S. Treasury as of June 30th was 2.53%, nearly 50 basis points lower than on January 1st (when consensus held that well-publicized Fed “tapering” would inexorably lead to higher rates).  On average, every asset class in our clients’ portfolios has achieved at least modest positive returns for the first half of the year.  Such homogenous results paired with muted volatility are historically unusual, and unlikely to persist.

In prior commentaries, we looked at junk bond yields as a proxy for investor sentiment and risk tolerance.  Figure 1 (below) plots the historical difference in yield between an index of non-investment grade debt (i.e. “junk bonds”) and U.S. Treasury bonds of similar maturity. Read the rest of this entry »

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