Published on February 6, 2020

The 2019 Treasury rally continued into January as the Coronavirus spread through China and cases began to be reported globally.

January 2020 Review:

  • The rally of 2019 continued in January, largely paced by a flight to quality bid for Treasuries as the novel Wuhan Coronavirus spread rapidly through China and saw some cases reported globally.  Investors likened the outbreak to SARS from late 2002-early 2003, which also featured a strong rally in Treasuries.  The fear of a resulting global slowdown forced the 10-year Treasury yield lower by 40 basis points, from 1.92% to 1.52%.  Treasuries returned 2.44%.
  • Unsurprisingly, mortgage and corporate spreads widened. The mortgage sector delivered 53 basis point of negative performance versus duration-matched Treasuries, while corporates underperformed duration-matched Treasuries by 80 basis points. However, both still delivered positive absolute returns (0.70% and 2.34% respectively).   
  • We sold our TIPS when the price of oil spiked during the flight to quality after the Iranian bombing of the Iraqi base in early January.  We replaced these with shorter duration Treasuries.
  • The portfolio (+0.36%) underperformed the Bloomberg Barclays U.S. Aggregate Bond Index (+1.92%) primarily due to its reduced duration exposure and its underweight in Treasury securities relative to the benchmark.

Standardized performance can be viewed here: Monthly and Quarter End Performance

Eddy Vataru

Chief Investment Officer – Total Return


Eddy Vataru

Chief Investment Officer – Total Return

Eddy Vataru

Chief Investment Officer – Total Return

Prior to joining Osterweis Capital Management in 2016, Eddy Vataru worked in senior management positions at Incapture, LLC and Citadel, LLC. Before that he spent over 11 years at BlackRock (formerly Barclays Global Investors, BGI), where his last position was as Managing Director and Head of U.S. Rates and Mortgages. While in this role, BGI worked with the U.S. Treasury in implementing its Agency MBS Purchase Program, buying mortgages for the U.S. government from 2008-2009.

He is a principal of the firm and the lead Portfolio Manager for the total return fixed income strategy. Mr. Vataru is also a Portfolio Manager for the growth & income and flexible balanced strategies.

Mr. Vataru graduated from California Institute of Technology (B.S. in Chemistry & Economics) and from Olin Business School at Washington University in St. Louis (M.B.A.). Mr. Vataru holds the CFA designation.

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Opinions expressed are those of the author, are subject to change at any time, are not guaranteed and should not be considered investment advice.

Performance data quoted represent past performance; past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance of the Fund may be higher or lower than the performance quoted. Performance data current to the most recent month end may be obtained by calling shareholder services toll free at (866) 236-0050.

FOMC refers to the Federal Open Market Committee.

The Bloomberg U.S. Aggregate Bond Index (Agg) is an unmanaged index that is widely regarded as the standard for measuring U.S. investment grade bond market performance. This index does not incur expenses and is not available for investment. The index includes reinvestment of dividends and/or interest income.

Sector returns above are those of the Bloomberg Barclays U.S. Aggregate Bond Index.

Mutual fund investing involves risk. Principal loss is possible. Investments in debt securities typically decrease in value when interest rates rise. This risk is usually greater for longer-term debt securities.”

A basis point is a unit that is equal to 1/100th of 1%.

TIPS refer to Treasury Inflation Protected Securities.

Investment grade bonds are bonds with high and medium credit quality assigned by a rating agency. For Standard and Poor’s, investment grade bonds include BBB ratings or higher. For Moody’s, the cutoff is Baa.

A mortgage-backed security (MBS) is a type of asset-backed security that is secured by a mortgage or collection of mortgages.

Duration measures the sensitivity of a fixed income security’s price (or the aggregate market value of a portfolio of fixed income securities) to changes in interest rates. Fixed income securities with longer durations generally have more volatile prices than those of comparable quality with shorter durations.

The Federal Funds Rate is the rate at which depository institutions (banks) lend reserve balances to other banks on an overnight basis.

In the money is a term used to indicate that an option has a strike price that is favorable in comparison to the prevailing market price of the underlying asset.

Out the money is a term used to indicate that an option has a strike price that is unfavorable in comparison to the prevailing market price of the underlying asset.

The Osterweis Funds are available by prospectus only. The Funds’ investment objectives, risks, charges and expenses must be considered carefully before investing. The summary and statutory prospectuses contain this and other important information about the Funds. You may obtain a summary or statutory prospectus by calling toll free at (866) 236-0050, or by visiting Please read the prospectus carefully before investing to ensure the Fund is appropriate for your goals and risk tolerance.

Osterweis Capital Management is the adviser to the Osterweis Funds, which are distributed by Quasar Distributors, LLC. [44131]