Mortgage-backed bonds and securitized loans are a better place to be than Treasuries as growth in the U.S. starts to pick up, said Jeffery Elswick, portfolio manager for the Frost Total Return Bond Fund. ‘We had a pretty poor first quarter in the United States, but we see growth beginning to move back up starting right now in the second quarter,’ said Elswick. ‘And when you come right down to it, our base-view is that we are going to continue to see growth in this 2% to 2.5% range – not just for this year, but into 2016.’ Elswick added that Federal Reserve Chair Janet Yellen also sees the economy starting to heat up and he suspects she will try and cool it down – or at least normalize rates – later this year. ‘In our perspective the Fed absolutely and the FOMC definitely sees an economy that is self-sustaining, that is moving in the self-sustaining way,’ said Elswick. ‘Our personal view is that we think, without a doubt, that the Fed is, in fact, going to lift money market rates, the Federal Funds Rate for the first time in a decade in the second half of the year.’ The ten-year treasury now yields around 2.3%, up from 1.8% in April.
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