Inside This Issue—Fourth Quarter 2009
2010 Outlook
Just over a year ago, the 10-year Treasury was flirting with a 2% yield and investor enthusiasm for anything other than Treasuries was virtually non-existent. The S&P 500 had returned -37% for the calendar year 2008 and fell even lower through the first quarter of 2009. The global economy was going through a massive deleveraging, confidence in the financial system was at a nadir, and the possibility of the next Great Depression was being widely discussed.
Fixed Income Sector Review
Steadily improving economic conditions and heavy new issuance put upward pressure on Treasury yields during the fourth quarter, leading to a loss of 1.3% in the Treasury component of the Barclays Capital Aggregate Index. The yield curve also steepened as the Fed reiterated its commitment to holding the target overnight lending rate at the zero-bound for an "extended period" while Congress continued on a path of seemingly unrestrained federal spending.
Economic Update
While the official arbiter for economic cycles has yet to call the date the Great Recession ended, we believe it happened last June. More importantly, we believe the recovery that took hold during the second half of 2009 will not only be sustained, it will accelerate.
International Bond Market Update
The year 2009 will go down in history as the year governments around the globe successfully stared down the Great Recession. However, the cost of rescuing the world was enormous and future generations will have to foot the bill.
Investment Results as of 12/31/09
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