Economic & Market Commentaries

"A common refrain when discussing the Federal Reserve’s ongoing fight to quell inflation is “the last mile is the hardest.” On one hand, progress so far has come faster than many had anticipated, with both headline and core inflation falling below 4% before the end of 2023. This was largely due to volatile non-core food and energy prices, however, and core goods, where supply chain normalization has allowed transitory-after-all price pressures to quickly fade..."

"One of the unexpected challenges of managing fixed income portfolios is how much of the capital markets have an equity bias. From regulatory guidance to risk measurement conventions, much of the framework of the markets we trade in appears to have been written primarily with equities in mind..."

“This summer we started suggesting investors consider rethinking their bond portfolio duration. After abrupt selling pressure subsequently pushed longer yields up another 70 bps at the end of Q3 and into early October, more support for our view appears to have developed. If the argument was strong then, it is even more compelling now, with bond yields higher than they have been in nearly 20 years.”

“There have been 14 federal government shutdowns since 1981 with nine lasting more than one business day. While federal employee furloughs and interruptions in federal aid distributions may cause very short-term adjustments for municipal issuers, based on past experience, we believe that a federal government shutdown that lasts beyond a few weeks would have minimal impact on the creditworthiness of municipal bond issuers.”

“Little more than four years have passed since the last US government shutdown. Yet, absent a last-minute breakthrough, the federal government is on track to shut down again in the early morning hours on October 1st, as the 2023 fiscal year budget expires. We see a shutdown as nearly inevitable at this point, so our focus has turned to the likely path to reopening, and the probable market implications of these events.”

"Extraordinary periods of time often introduce structural changes long after the precipitating event  passes, and by many measures the impact of COVID-19 fits this pattern."

"On the evening of August 1st, Fitch downgraded the US Treasury credit rating from AAA to AA+, and lowered federal agency debt, including Fannie Mae and Freddie Mac, in line to AA+ one day later."

"As an active fixed income manager, one of the most frequent questions we’ve been asked in the past year is, with shorter bonds out-yielding longer ones, why wouldn’t you just buy the shorter ones?"