Equities posted a strong second quarter of 2017, with the S&P 500 Index up 3.09%. Equity market volatility remained subdued, despite weaker oil prices, while interest rates declined for much of the quarter. Crude oil fell from an intra-quarter high of $53.40 to $42.53 near the end of the quarter while the 10-year U.S. Treasury yield touched 2.414% in May and drifted to 2.126% by mid-June, eventually finishing the quarter at 2.304%. Declining yields were a boon to fixed-income, with investment grade corporate bonds up 2.42% and high-yield bonds up 2.14% for the quarter. Moreover, the yield-curve flattened significantly in the quarter, with the difference between 2-year U.S. Treasuries and 10-year U.S. Treasuries falling to a mere 79 basis points (bps) in mid-June from 113 bps on March 31, 2017. In our opinion, the primary catalyst for lower rates and a flattening yield curve was a building narrative around weaker inflation data in the U.S. and a view that the Trump Administration's pro-growth policies may be far more difficult to implement than previously anticipated.
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