High yield bonds outperformed with equities to end the year up 15% (ML US High Yield BB Rated). While longer bonds were down slightly in Q4, they still posted strong gains for the year and outperformed shorter maturities by a wide margin. Treasuries, Agencies, Corporates, and Municipal bonds all performed well against a backdrop of falling rates.

Rates declined in the third quarter, with the ten year treasury yield dropping over 36 basis points to 1.66%. The municipal yield curve inverted on the short end, joining the inverted treasury curve.

Duration continued its 2019 outperformance in the second quarter. Longer dated treasury, corporate, and municipal bonds outperformed shorter durations in anticipation of future rate cuts from the Fed and lackluster inflation.

In this letter we discuss 4 different indicators from our Economic Dashboard: inflation, labor, growth, and market. We also look at the FED's policy of Quantitative Tightening (QT) , and projected budget deficits.

The yield curve continued to flatten in the second quarter of 2018; as of 06/29/2018, the thirty-year treasury only yielded 13 basis points more than the ten-year treasury. Duration underperformed in the first half of the year, while some shorter fixed income indices ended the second quarter in positive territory.

The federal funds rate stands at 1.75 (upper bound) after two hikes from the FOMC in the first quarter. Longer dated fixed income securities underperformed as higher rates were absorbed by the market.