U.S. Treasury yields disappointed in 2014.
Ten-year Treasurys in the U.S. were at 3% at the start of last year, and investors expected rates would move higher to 3.25% or 3.5%, says Andrew Kronschnabel, portfolio manager at Logan Circle Partners in Philadelphia. He manages the Renaissance U.S. Dollar Corporate Bond Fund.
Instead, 10-year Treasurys closed the year at 2.17%, and they’re currently sitting at about 2%, he adds. “The turn in rates has surprised people consistently over the last couple of years.”
Yet, compared to other countries, U.S. Treasury yields are high, says Kronschnabel. “When you look at Europe, you see front-end rates in Germany and Switzerland are negative. And, rates in Italy and Spain are […] 70bps and 100bps lower than [rates] in the U.S. right now.”
Despite low yields in the U.S. in 2014, advisors had the chance to add value to clients’ portfolios, says Kronschnabel.
“In the high-grade market,” he adds, “there was a 15% return difference between the top- and bottom-performing sectors of the market.” And, “in the high-yield space, there was a 17% dispersion between the top- and bottom-performing sectors of the market.”
He finds cable and satellite providers performed well in 2014, while energy companies lagged.