During the second quarter of 2024, the Treasury market experienced heightened volatility as market participants tried to predict when the Federal Reserve would start cutting interest rates. The 10-year Treasury yield fluctuated between a high of 4.705% and a low of 4.222% over the course of the quarter. Despite this volatility, the net result was only a slight increase in yields compared to the start of the quarter. The most significant move was in the 2-year Treasury, which rose 12.2 basis points to 4.743% as of June 25, 2024. The 10-year and 30-year Treasuries approached the end of the quarter up just 4.7 basis points to 4.249% and 3.5 basis points to 4.378%, respectively. The complete Treasury yield curve movements for the quarter are detailed below.
Source: Bloomberg
After declining consistently for the past two years, investment-grade corporate and taxable muni spreads halted their downward trend. As of June 25, 2024, the spread on the Bloomberg US Corporate Bond Index increased by 1 basis point to +93, and the spread on the Bloomberg Taxable Muni US AGG Index rose by 4 basis points to +82. As noted in our previous quarterly report, we believe the potential upside in these spread products has been largely realized. As a result, we have begun reducing our overweight position in these securities and increasing our allocation to Treasuries. We expect these spreads to widen further, which would present an opportunity to reinvest in these spread securities later in the year.
As we move into the third quarter of 2024, we will closely monitor economic data, with a particular focus on inflation. Our long-term outlook anticipates lower interest rates, as we expect the Federal Reserve to begin cutting rates later in the second half of the year. Accordingly, you can expect us to gradually increase our Treasury exposure over time, as long as spreads remain at or near multiyear lows. Our goal is to maintain higher liquidity levels, which will provide more flexibility as we make strategic adjustments going forward. While taking a conservative approach to credit, we will also seek to be opportunistic in pursuing attractive investment opportunities as they become available.
Daniel Himelberger
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