Market Review and Outlook: 4th Quarter 2014

This commentary reviews the previous quarter and the year 2014, and discusses our outlook for the coming year.

Commentary Highlights:

• The municipal yield curved continued to flatten during the 4th quarter of 2014, as longer yields fell and shorter yields ticked slightly upward
• Early in the quarter, we took advantage of the outperformance of our US Treasury cross-over positions and reduced our exposure.
  – Weaker than expected retail sales and heightened geopolitical fears resulted in a flight to quality and normalization of municipal-Treasury ratios.
• During 2014:
  – Interest rates edged down steadily throughout the year.
  – Inflation remains below historic averages.
  – Energy prices collapsed, and most other commodity prices weakened.
  – The dollar rose to an 11 year high.
  – Bond portfolios delivered strong returns, with longer maturity bonds outperforming shorter ones
• Outlook for 2015:
  – Any rate hikes are expected to be incremental and well signaled ahead of time.
  – Lower energy prices may be stimulative for the economy.
  – Continued low inflation, an increase in disposable income, and slow but accelerating economic growth all combine to offer a more optimistic economic outlook.
  – While rates may rise from their current near rock-bottom lows, we are likely to remain in an environment where rates are at the lower end of their historic range

Please click on the link below to download the commentary.