Inflection points in markets are hard to recognize and allocating money to out of consensus positions is a tough trade. But very few forecast the rout that the largest market in the world has experienced. Of course, I’m writing about the BOND market, as noted by the 27% drop in international treasury bond index this year. Investors that held bonds for a long time assuming they were invincible had a rude awakening as rates have climbed at the fastest rate in modern time. The inverse relationship between bond prices and rates is stark and pain has been felt. But we view the jolt in rates as an opportunity as the short terms bonds like two-year treasuries are now paying 4.3%. As our clients know, it’s been a long time since I’ve touted short term bonds, and this is an inflection point for me!
This thesis centers around the global price drop in nearly every asset. Check oil, lumber, housing, stocks, bonds, and freight rates for validation. Global central bank tightening has worked, and assets are plummeting. The remaining bastion the Fed wants to attack are jobs and cuts in that market are being announced daily by some of the largest companies. Investor should be positioning for the end of the hiking cycle and looking at short term fixed income is my recommendation. As always, I appreciate the continued trust and confidence.
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