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Wall Street Webcasting Presents: Wells Fargo Securities: “Portfolio Management In A 'Bear Flattening' Scenario”

Stocks in this article: WFC

Wall Street Webcasting has prepared and provided for you an exclusive broadcast of Wells Fargo Securities' own, Rich Gordon. Gordon is highly recognized for his weekly narrates regarding the fixed income strategy at Wells Fargo Securities (NYSE:WFC). This week, Rich Gordon discusses the change of Treasury Curve and how a Bear Flattening curve has profound implications for money managers of all types.

The change in the potential timing of the first rate increase from the FED has influenced the portfolio managers. The main change is in the steepness of the Treasury Curve, if the economy keeps recovering than further flattening in the curve will take place. In Bear Flattening scenario almost all bonds see declines in market value, the goal is to decrease the decline of portfolio’s total value while maintaining an acceptable level of income. Two strategies Gordon suggests is Barbell portfolio structure and Simple market timing. The tradeoff between maximizing portfolio income and minimizing mark-to-market loses is best accomplished when funds are deployed after the larger episodes of curve save changes. Gordon says that it would be a good time to add assets in a three year part of the curve, because it is important not to chase the market.

Despite the unstable situation in Russia and Ukraine and despite small-caps changes, investment grade spreads have rallied over the past month. Investors are choosing to take credit spread risk rather than duration risk, but they should be aware that longer term bear flattening environments will increase the spread compression. Gordon advises that fixed income portfolio managers need to know how their portfolios perform in multiple scenarios of bear flattening, because the portfolios that underperform in bear flatteners are those where risk management has been ignored.

To hear a more in depth explanation of recent trading patterns, and what other effects the late economic data may have, please tune into Wells Fargo Securities’ latest video.

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