Since opening our doors at City Different Investments, it is finally time to say— segments of the fixed income market are starting to get interesting!
The fixed income markets have endured a significant amount of volatility in the first quarter of 2022. As seen below, as of 4/8/2022 the major fixed income indexes have registered substantial losses.
As you know, volatility may lead to opportunity. While all of the current backward-looking inflation measures (CPI, PPI and PCE) are at multi-decade highs, market-based inflation measures tell a different story. The St. Louis Fed’s 5-Year, 5-year Forward Inflation Expectation Rate is 2.41%, and the 10-Year Breakeven Inflation Rate is 2.87% (as of 4/8/2022). In other words, segments of the fixed income market are beginning to look fairly valued based on forward inflation expectations.
Previously, we at City Different Investments believed that people were taking on outsized risks in exchange for the low rates offered. This is now a much different picture than we have seen in the last year or so. Of course, it is nearly impossible to pick the bottom of a market. Attempting to do so is a great way to get caught with egg on your face, so you won’t hear any loud proclamations from us. However, we think it is a good time for the long-term investor to begin thinking about your fixed-income allocations. We especially like the 1-5 year segment of the market in a laddered separately managed account. If interest rates continue to rise, this vehicle has low duration risk and approximately 20% of the investment maturing each year, providing the opportunity to invest at higher rates.
We think the yield curve will steepen, and when it does, we will be back to keep you updated. This is one of the many benefits of partnering with City Different Investments. If you would like to speak directly with us about these views, please reach out to me or Sweta.
Contact Information:
Chris Ryon – chris@citydifferentinvestments.com
Sweta Singh – sweta@citydifferentinvestments.com
IMPORTANT DISCLOSURES
The information and statistics contained in this communication have been obtained from sources we believe to be reliable but cannot be guaranteed. Any projections, market outlooks or forecasts discussed herein are forward-looking statements and are based upon certain assumptions. Other events that were not taken into account may occur and may significantly affect the returns or performance of these investments. Any projections, outlooks or assumptions should not be construed to be indicative of the actual events which will occur. These projections, market outlooks or estimates are subject to change without notice. Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product, or any non-investment related content, made reference to directly or indirectly in this communication will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. No discussion or information contained herein serves as the provision of, or as a substitute for, personalized investment advice. To the extent that a reader has any questions regarding the applicability above to his/her individual situation of any specific issue discussed, he/she is encouraged to consult with the professional advisor of his/her choosing. City Different Investments is neither a law firm nor a certified public accounting firm and no portion of this content should be construed as legal, tax, or accounting advice.