Thursday, December 5, 2013

Today's GDP Revision- Xavier's Thoughts

For those of you that eat, drink (non-alcoholic), and sleep fixed income (not salary, but the market type), like some of us do, today is a day of contemplation. We had a very positive 3Q GDP, which is fuller of hot air than all of the used car-salesmen put together (no disrespect meant to any or all salespeople).  Most of the good GDP news was inventory accumulation (biggest since 1998). Now, inventory growth can be good,  as long as it is sold. However, consumers are not buying, so we will have to see if today’s high will be tomorrow’s low.

Now for the fun part. The yield curve is the steepest it has been all year!  That means more roll-down opportunities.  Under this scenario we want bullet structures or deep discount callable securities. Therefore mortgaged backed pass-thrus are a no-no. So, you might be wondering about CMBS. They are not pass-thrus. They are bullet structured! So are DUS bonds. Anyhow, the point of all of this is to say that we are very well positioned for this market environment and for today I am very happy. That, for a fixed income portfolio manager,is like drinking a double espresso right after his cappuccino.

Thanks for listening!

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