These factors largely benefited the performance of longer-term Treasuries. Yields on 10- and 30-year issues declined by 31 (0.31%) and 41 basis points (0.41%), respectively, while five-year Treasury yields fell just two basis points (0.02%) and two-year Treasury yields rose four basis points (0.04%). The primary cause of the flattening yield curve was that even as longer-term bonds rallied, shorter-term issues were pressured by U.S. Federal Reserve Chair Janet Yellens suggestion that the Federal Open Market Committees first interest rate hike may occur sooner than investors had expected.
The Portfolio returned 0.43% during the quarter, slightly underperforming its benchmark. The Portfolios positioning with respect to both the yield curve and duration had a negative effect on performance. However, our tactical exposure to select areas of the mortgage-backed securities sector helped to offset some of the impact.
If you're a conservative investor who prefers the income and quality assurance offered by government securities, you may find this Fund attractive. It is best suited for investors with relatively low-risk profiles and can provide a solid-core holding for income-oriented investors of all ages.
- Invest primarily in securities issued or guaranteed by the U.S. government or by its agencies.
- Select high-quality securities with maturities, under normal circumstances, between one and 10 years, with risk exposure managed in an effort to achieve reasonable returns.
- Buy and sell securities using a relative value approach that employs models that analyze and compare expected returns and assumed risks.