The performance story of 2014 was the rally in long dated U.S. Treasurys. The Bank of America Merrill Lynch (BAML) 15+ Year U.S. Treasury Index returned 26.34% for 2014. The effective duration of the index was roughly 17 years. Over the course of the year we discussed some of the reasons for the rally in long bonds, such as yield differential between U.S. and other developed markets and lower inflation expectations. Our intermediate and long strategies participated in the curve flattening by maintaining a barbell duration strategy for most of 2014. On the front end of the curve, BAML’s intermediate investment grade sectors show Taxable Municipals and Mortgage Backed Securities did very well versus other intermediate sectors (see table). Our Blend, Taxable and Credit Strategies benefited from being overweight to these sectors. Intermediate municipal bonds got expensive in 2014 as demand outpaced supply. Intermediate Muni/Treasury ratios reached 65% at one point, and we sold out of the most expensive part of the curve. We also advised our tax-exempt clients not in the highest income tax bracket to switch to our blend strategy to take advantage of the situation. TIPS continue to lag other investment grade sectors due to low headline inflation. Overall, the great rotation out of investment grade bonds did not materialize in the 2014. We “bought insurance” for this potential sell-off scenario by being underweight duration relative to our benchmarks most of the year, by maintaining a barbell curve position in our intermediate and long strategies for most of the year and by being overweight sectors that outperformed while selecting the best risk/reward credits. We look forward to 2015 and wish you a Happy New Year.