April 22, 2025
Dear Investors and Friends,
Given the extraordinary political, economic, and market developments in April—beginning with Trump’s “Liberation Day” and the subsequent tariff announcements—we’ve chosen to momentarily set aside our “Why Bonds, What Bonds, How Bonds” series to focus on the current environment.
Equity markets have sold off sharply, volatility has spiked, and stagflation fears have returned to the headlines. But what’s most surprising is what hasn’t happened: Treasuries, which normally rally during times of fear, have instead sold off. In this letter, we’ll take a closer look at why that is, how Roosevelt Capital Management positioned client portfolios for this environment, and what our approach means for our clients going forward.
Why Treasury Yields Rose When Fear Took Over
During the week ending April 11, the 10-year Treasury yield surged by 50 basis points—from 3.99% to 4.49%—before settling back to 4.33%. That move occurred even as equities dropped sharply and the VIX spiked to levels not seen in over a year.
This unusual behavior can be traced to a few key dynamics:
- Stagflation concerns: With inflation appearing more stubborn than originally anticipated by the market and growth prospects weakening, investors are bracing for a stagflationary environment—historically negative for bonds.
- Supply pressure: The Treasury is expected to issue more debt to finance persistent deficits, putting upward pressure on yields.
- A constrained Fed: With inflation still above target, the Fed is unlikely to step in with rate cuts, even as markets wobble.
In past market panics, bonds offered ballast. This time, they’ve added to the volatility. It’s a reminder that nothing in markets is ever guaranteed.
How RCM Prepared for This
At Roosevelt Capital Management, we don't attempt to predict short-term moves in rates or spreads. We prepare by sticking to two timeless principles:
- Shorter Duration: We avoid bonds with effective maturities beyond 10 years. This helps reduce exposure to both interest rate risk and credit spread widening—both of which can hurt performance in volatile environments.
- Credit Underwriting and Monitoring: We build portfolios of individual bonds, selected and monitored based on their fundamentals. When volatility strikes, we know what we own. That confidence helps us stay the course—and often, take advantage of others' forced selling.
A Disciplined Process, Not a Crystal Ball
No one saw this exact combination of politics, inflation, and rate volatility coming. But that’s precisely the point. Our investment discipline is designed to be resilient when the unpredictable happens.
We don't avoid mark-to-market fluctuations—no strategy can. But we do aim to avoid permanent impairment, and to seize opportunity when others panic. Our repeatable approach of buying relatively shorter-maturity individual bonds issued by fundamentally sound issuers in separately managed accounts (SMA) —at yields that are materially higher than the market—has been a recipe for meaningfully outperforming the bond market over the medium to longer term.
We’re always here to answer questions, review your strategy, or talk through the environment. Thank you, as always, for your continued trust.
Warm regards,
David and Mike
Disclaimer
Roosevelt Capital Management LLC is a registered investment adviser. The information presented is for educational purposes only and is not intended to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein.
Past performance is not indicative of future performance. Principal value and investment return will fluctuate. No guarantees or assurances that the target returns will be achieved, or objectives will be met are implied. Future returns may differ significantly from past returns due to many different factors. Investments involve risk and the possibility of loss of principal.
While all the values used in this report were obtained from sources believed to be reliable, all calculations that underly numbers shown in this report believed to be accurate, and all assumptions made in this report believed to be reasonable, Roosevelt Capital Management LLC neither represents nor warrants the values, calculations or assumptions and encourages each prospective investor to conduct their own review of the audits, values, calculations and assumptions.