Semper Fixed Income Total Return Strategy Performance During Periods of Rising Interest Rates
by Semper Capital, on Mar 17, 2021
- Rising intermediate/long Treasury yields continue to dominate market news – the Fed is committed to keeping the front end close to zero, which is anchoring the 2-year Treasury, but seems less concerned currently with longer rates rising
- Given growing strength in the economy, vaccine progress, fiscal stimulus and continued Fed policy, the market may continue to push much of the yield curve higher, negatively impacting fixed income sectors with duration
- A significant portion of the RMBS sector including many bond profiles that Semper considers for investment have duration of 2 years and under, avoiding much of this potential interest rate risk. Additionally, about ½ of the bonds held in Semper’s Total Return Strategy are floating rate securities. While coupons are currently low, forward rates have been rising, and when base rates rise over the course of this expanding economic cycle, yields will rise
- The housing market’s strength is expected to continue even as rates rise. This sector’s fundamental and technical strength has provided strong support for the credit quality of the RMBS sector broadly. As a result, we expect these bonds to perform well if the current environment of increasing rates persists
- The graph below highlights the historical relative outperformance of Semper’s Total Return Strategy, focused on RMBS, during periods of rising interest rates over the past several years
Semper Fixed Income Total Return Strategy Net Performance vs. 10-Year Treasury Yield & Bloomberg Barclays Aggregate Index
Growth of $10K – 8/31/2013 to 2/28/2021; periods of rising rates highlighted
This chart illustrates the performance of a hypothetical $10,000 investment made in *Semper Fixed Income Total Return Strategy and Bloomberg Barclays Aggregate Index on 8/31/2013 which assumes reinvestment of dividends and capital gains alongside the 10-Year Treasury Yield. This chart does not imply any future performance. Net performance indicates performance net of all fees and expenses. Performance data is historical and past performance is not indicative of future performance. (Source: Semper/Bloomberg)
Opinions expressed in this document represent the views of Semper Capital Management, L.P., are valid only as of the date indicated, and are subject to change without notice. There can be no guarantee that any of the opinions expressed in this document or any underlying position will be maintained at the time of this presentation or thereafter. We are not soliciting or recommending any action based on this material. The information contained herein has been prepared solely for informational purposes and is not an offer to buy or sell or a solicitation of an offer to buy or sell any securities.
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