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
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