Try to go away for a couple of weeks, marvel at the changing colors of autumn, speak a little French, and what happens? All heck breaks loose. The dollar rallies, the euro sells off, French kids riot and yields spike. All of this is taking place immediately before an election. Oy vey!
I shall discuss this in greater detail in the newsletter. For now, the big story isn't France, but American oil production and excellent U.S. economic performance. Below is domestic GDP growth over the last ten years.
The United States is now a net oil exporter and since oil is priced in dollars, the recent runup in oil prices also drives up the dollar. This combines with solid economic growth to keep interest rates relatively high. A decline in oil prices, which will ultimately happen, will take some upward pressure off rates, but as long as U.S economic expansion persists, I don't anticipate a significant decline in rates for the foreseeable future.
For now, we are trying to take advantage of income opportunities for under five-year maturities while looking for opportunities for tax-loss swaps that can lower our clients' taxes. We are also assessing the wisdom of taking advantage of the weakness in the euro caused by headline news.