Outside the Box

Quarterly Review and Outlook: Second Quarter 2007

John Mauldin

July 16, 2007

This week in Outside the Box, we take a closer look at the bond market and its underlying drivers. HMIC's Van Hoisington and Dr. Lacy Hunt anticipate lower inflationary pressures on account of faltering consumer spending and further deterioration in the housing market.

Hoisington Investment Management Company focuses on long-term investment strategies based on Economic Analysis. The firm is a registered investment advisor specializing in fixed income portfolios with over $3.5 billion under management for large institutional clients. Van R. Hoisington is the President and Chief Investment Officer and has produced an outstanding fifteen-year performance record. Dr. Lacy Hunt, an internationally known economist, joined the firm in 1996 adding depth and expertise with his in-depth research and analysis.

Today's article is from their Second Quarter Review and Outlook which I am delighted to present to you with their consent. While constructing their assessment for bonds, Van and Lacy walk through each building block, providing analysis on the predominant driving factors in the bond market and their respective implications.

John Mauldin, Editor
Outside the Box

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Quarterly Review and Outlook: Second Quarter 2007

By Van R. Hoisington and Lacy H. Hunt, Ph.D.

FISCAL YEAR REVIEW

Long-term interest rates declined slightly in the fiscal year ending June 30, creating a small capital gain in addition to the coupon return. Long-dated Treasury portfolios such as HIMCO's registered a 6.4% return compared with the 6.1% return of the Lehman Aggregate Bond Index. Investment in the long end of the Treasury market has also…

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