The Take
on what the market gives us…
The Bear Market Essentials: 3 Charts for 2H-22
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August 3, 2022
“I think we now understand better how little we understand about inflation.” – Federal Reserve (Fed) Chairman Jay Powell, June 29, 2022. When Fed Chairman Jay Powell pronounced this now infamous statement, the bond market sighed. His epiphany had been realized by Treasury curve pricing as far back as May 6th, or the day the 10-year Treasury yield closed at a then year-to-date high of 3.13%. Read More
What's in a Yield Curve?
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July 19, 2022
Market pundits will tell you that an inverted Treasury yield curve is a precursor to a recession. There have only been 3 recessions in the past 30 years: March 2001 – November 2001, December 2007 – June 2009, and February 2020 – April 2020. The 2-year/10-year Treasury relationship inverted prior to all three of these cases, 15, 18, and 6 months prior to the onset of the downturn. We had a brief inversion in April, and currently stand within a 18bp inversion as of this writing. Read More
Higher Yields for High Yield
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June 29, 2022
With the recent market dislocation, yields on high-yield (HY) corporate debt have moved to about 8.5%, more than double what they were at year end and about 240bps above their 10-year average. Including now, we’ve seen only five periods of yields over 7% since the Global Financial Crisis (GFC); two lasted about a year while two were over in a matter of weeks. Current spreads near 500bps are about 70bps above their 10-year average and over 100bps wide to their 5-year average. How often are spreads wider than they are currently? Read More
The Ins and Outs of Portfolio Cashflows
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June 23, 2022
There are many reasons for client cash flows, both in and out. While the timing of incoming cashflows is very important, many clients pay even more attention when they are taking money out, focusing on liquidity and how quickly and easily they can get their money back. As a fixed income manager we naturally invest in markets that maintain superior liquidity during times of stress, especially compared to private markets. That said, the over-the-counter function of the bond market comes with its own nuances. Within the investment grade space, liquidity is relatively high on the overall spectrum. And fortunately, liquidity in the bond market flows more than it ebbs. Read More
Cheers to 35 Years!
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June 14, 2022
As we celebrate our 35th birthday here at IR+M, it’s interesting to look back at the year of our birth, 1987. The Celtics lost to the Lakers, Whitney Houston’s “I Wanna Dance with Somebody (Who Loves Me)” won a Grammy for Best Female Pop Vocal Performance and Top Gun won an Oscar for Best Music (Original Song). The Dow dropped 22.6% in a single day (Black Monday, October 19), Drexel Burnham Lambert and the high yield market began to show cracks and Wall Street premiered with Gordon Gekko proclaiming that “greed…is good.” Read More
Ten Thoughts on Heavy Seas Investing Along the Curve
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May 18, 2022
Any seaman will tell you that weather forecasting is not an exact science. They’ll also joke that “gentlemen do not go windward." But extending this analogy to bond investors preferring to sit in cash amidst a Fed hiking cycle is misguided. Sure, beating windward into the Fed’s heavy seas can be wet, rough, and sloppy. But today’s racing yachts are designed to perform best in the windward direction, as that is often where the race is won. Bond investors who continue to buy high-quality paper during a Fed hiking cycle can be rewarded for their tactical skills. They’ll also be the ones fully invested when that sudden and pronounced change in market wind direction fills the sails of long-term returns. Read More
Live. Learn. Hedge well.
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May 10, 2022
Rather than relying on timing, making and sticking to a plan can lead to better success in getting on your bike, and more importantly, de-risking your pension. Read More
Is It Time Yet?
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April 25, 2022
Markets are resilient. Many periods of significant drawdown create attractive buying opportunities. There is often an overshoot, and prices can recover quickly. We are not predicting what rates will do, nor how Ukraine, inflation, or recession will play out, but it seems like the market has digested and discounted a fair amount of the potential economic fallout. For investors looking to add some yield to their portfolios at much better levels than anytime over the past 3+ years, it may make sense to begin to average in. Read More
Taxable Munis: Not Exactly a Backwater…
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April 25, 2022
Taxable munis are an easily overlooked sector of the bond market, whether due to lack of knowledge of the issuers, structure, or fear of illiquidity. A strategic allocation may make sense for those investors looking for a high quality diversifier with a reasonably attractive yield and low volatility. Read More
Can We Be Optimistic About Climate Change?
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April 21, 2022
I tend to think of myself as a “glass half full” type of person. But, if I’m being honest, much of the reading I do on a daily basis gets pretty depressing. It would be easy to feel down about the impacts of climate change, the lack of urgency to enact change on a global level, and the severe imbalance of those most affected. The most recent Intergovernmental Panel on Climate Change (IPCC) Assessment Reports don’t offer much room for hope either. But can we be optimistic about climate change? Read More