Optimism and Risk Taking, For Now, Offering us
an Opportunity to Extend Maturities
Date: 11/6/24
Author: Dimitri Triantafyllides, CFA
The immediate reaction to Donald Trump’s win over Kamala Harris in the US presidential election has been one of risk-taking euphoria, pushing up equities more than 2% to record levels, increase in long-term US Treasury yields, and a rally in the US dollar. As can be seen by the chart below, the US 10-year Treasury is now trading at a 3-month high, close to a 4.5% yield. While concerns about the US Deficit, inflation expectations, interest rate burdens on the Federal budget as well as geopolitical risks remain, they are clearly to be dealt with another day. For now, it’s risk on.
Since our objective is to manage portfolios for long-term risk-adjusted return, we are not looking to chase performance over the immediate term. Instead, we see the selloff in longer-term rates as an opportunity to start adding some five-to-10-year maturities in our portfolios, taking advantage in the selloff in Treasurys.
The current shift of the yield curve toward “normalization” (ie short-term rates lower than long-term rates) implies an improving environment for capital spending and economic growth. This yield curve shift has generally helped increase the value of our holdings with shorter maturities. Nonetheless, putting new capital to work at the short end of the curve has become less appealing. The selloff in longer term rates discussed above is now offering us an opportunity to seek yield in the 5-10-year maturity spectrum. We would not be surprised to see the increase in long term yields continue, with the 10-year yield potentially testing it’s prior recent peak of around 4.7%. As a result, we intend to be deploying capital methodically and prudently.
Please feel free to reach out to us with any questions or comments.
Dimitri Triantafyllides, CFA
Chief Investment Officer
dtriatafyllides@forestcapital.net
Dana Coulter
Chief Administrative Officer
dcoulter@forestcapital.net
Karen Wright
kwright@forestcapital.net
704-533-9876 (office)
www.forestcapital.net
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