By Nick DePersis, Investment Manager
When looking at the economy and global markets, one word comes to mind — volatility! We are currently in unprecedented times. We are in the latter stages of a global pandemic, fresh off the heels of an economy that was ordered to shut down for the better part of six months. In March 2020, the stock market fell nearly 40 percent but then went on to rally nearly 60% in the following nine months as the federal government pumped nearly $6 Trillion into the U.S. economy.
The other huge factor that has led to the massive rebound is that the United States Federal Reserve has swiftly moved short term interest rates to effectively 0% and has demonstrated that they will not look to raise that rate for three or so years. While the rapid monetary reaction from the government to the covid-19 pandemic created a stable and quickly recovering equity market, it has created many challenges in the fixed income market.
While interest rates have risen slightly from their historic lows in late 2020, they still sit significantly below our recent year’s averages. The benchmark 10-year government treasury rate sits at 1.6% today, down from nearly 3% at year-end 2018. Low interest may directly benefit the economy and the stock market, but it creates a unique suite of challenges for a large, fixed income portfolio.
Interest rates on investment grade corporate bonds or taxable municipals have been depressed significantly on both the long and short end of the curve. Daily tactical portfolio management, enhanced company due diligence, as well as the development of non-traditional investment options, have become paramount as we continue to search for high quality yield to allow ISDA Financial Life to operate in the capacity in which we have all become accustomed.
Despite the challenging climate and turbulent markets, ISDA continues to prosper. While we have been able to effectively acquire quality securities with solid yields, we have also taken the proper steps to strengthen the quality of our overall portfolio. These measures will protect and position ISDA for whatever the post-pandemic economy presents.
Given the multitude of economic challenges referenced above, please review the strong 1st quarter 2021 results that are outlined on this page. (Full Year 2020 provided for comparison).
Click here for our latest Financial Report.