NewEdge Wealth Senior Portfolio Manager and Head of Fixed Income and Macro Ben Emons comes on The Morning Brief to discuss investment portfolio strategies for the bond market while the Treasury yield curve (^TYX, ^TNX, ^FVX) remains largely flat.
“If these data points keep throwing us off with volatility going one way or the other for interest rates, then you want to play it more safer,” Emons explains. “So let’s say you want a duration of six years, you can do that. But you have to use different pieces of fixed income in that duration to get to six years by having a low volatility portfolio.”
Emons goes on to comment on the longevity of the US economy’s post-pandemic growth, naming the “productivity miracle” that has been an integral driver.
For more expert insight and the latest market action, click here to watch this full episode of Morning Brief.
This post was written by Luke Carberry Mogan.
Video Transcript
Speaking of of what’s happening in the bond market and sort of the action we’ve seen, you know, along the Treasury curve over the last month.
And and really the way that price has, perhaps led some folks to think about how they’re allocating across asset classes.
What’s the state of play as we sit here mid 24?
You still have 5% on the two year.
Still have plenty of opportunities to get something for nothing, right?
If you wanna talk about Treasuries and cash, what moves have you been making?
Seen been discussing most often as it comes to those allocations which you know are are now we’re a year into a state of play that people didn’t think would last too long.
You had a yield curve is actually being very flat and stable.
You know, the the the difference between the two and the thing is something oscillating around negative 40 basis points.
So you’re not getting much reward from being really far out the U curve.
And as an investor, I take note of that because at the end of the day, it’s about risk taking in this case of like if I don’t get enough yield for the duration risk, so to speak.
I may have to do different things now.
I was talking to some of our clients and our advisors and our firm about thinking of duration itself, which is basically measuring the sensitivity of the portfolio with interest rate changes.
You should not think of diversifying duration because we are in an environment I just described.
If these data points keep throwing us off with volatility going one way or the other for interest rates, then you want to play it more safer.
So let’s say you want a duration of six years.
You can do that, but you have to use different pieces of fixed income in that duration to get to six years by Have a low volatility portfolio.
So what it comes down to is that you probably have to do more shorter maturity securities.
At this point, you not only get a better yield there, but it gives you low volatility.
But then there’s emerging markets.
There’s prefers from that banks are issuing.
There’s structure credit, there’s those are all like securities, I think are attractive in this environment.
They have been positively returning and gives you a low volatility for the same duration.
And you you mentioned emerging markets and made me think of something else that you brought up in your notes about Milken last week.
And and it seemed like, you know, Rick Newman made this point in a column.
Several other outlets made the point that everyone was cheering the US economy.
Everyone was super excited about investing in America.
What do you make of that kind of consensus?
Overweight to the US in the context of global investments?
Um, there’s a big story in the FT over the weekend about Will Europe ever catch up to the US economy?
Everyone is kind of contrarian.
I think signals are going off.
It’s a productivity miracle that we are dealing currently with.
Or at least we are anticipating it.
With all this a I hype and the money is spent on it.
You know we have a stronger economy because I think really that in the early days of the pandemic, part of the country just reopened without having any kind of acceptance of the pandemic being there, so to speak.
And I think that was really that matter.
Today, even and all the Sun Belt states.
And then we got the stimulus not just the spending stimulus, but the Infrastructure Act and Inflation Reduction Act.
That sounds political, but it does have a real impact on the economy.
Currently, that’s actually driving the productivity to an extent.
I think this is why people are looking at the US of this difference of growth versus Europe.
That does not have as much productivity growth currently.
And lawmakers in Europe are concerned that productivity growth is too slow.
And I think this is why people like the US but to sustain it.
This was the other big team at the Milken Conference, like everybody wants a rate cut because if we don’t cut rates at some point, then we cool off the economy too much and that productivity miracle may disappear.
So I think the enthusiasm for the US will remain and it will remain well into the election.
After that, we’ll see.
But I do think it’s the outperforming economy
