Taxable Fixed Income Commentary 2Q2011

Fixed income delivered strong second quarter returns led by Treasuries, as a broad softening of U.S. and global economic data, combined with growing concerns of a Greek default, drove yields and risk asset prices sharply lower during May and most of June. By late June the “risk-off” trade had pushed 10yr Treasury yields well below 3.0% and wiped out most of the equity market gains for the year, before reversing course in the final weeks of the quarter. A better tone to economic data, temporary relief in Greece’s debt situation, and quarter end position squaring triggered a pretty substantial reversal in risk buying in the final weeks of the quarter. Long Treasury yields rose sharply into the final weeks giving back close to half their gains for the quarter and high yield spreads tightened 40 basis points in the final week alone.