The Flexible Growth & Income Report

02/27/2017 1:20 pm EST

Focus: STRATEGIES

David Fabian

Managing Partner, FMD Capital Management

The 10-year Treasury note yield has pushed yields back to the top of the most recent range. While many pundits have called out 2.6% on the 10-year Treasury note yield the line in the sand for bond bears to celebrate, we believe it’s closer to 3% before a deeper sense of worry is warranted. 

Albeit, on a short-term basis, a break above 2.6% would definitely put high quality bonds in a precarious situation. In addition, since yield spreads between high quality bonds and high yield bonds are back near historic lows, don’t expect a break above 2.6% to go unnoticed in high yield debt. 

It’s likely that fixed coupon high yield begins to suffer right alongside high quality bonds if measures of inflation continue to rise, along with yields.

In the meantime, we continue to be comfortable with where we sit, as bonds become even more attractive, we are reminded that stocks don’t need to fall for opportunities to present themselves. So we could very well be setting up for a larger fixed-income opportunity sometime in the first part of 2017.

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