Asset TV U.S.’s Post

Transcript

Hello and thanks for tuning in to this edition of Top Picks. We'll take a closer look at what bond investors can expect in the year ahead. The case for fixed income during Fed rate cutting cycles moderation could make sense in the current environment. You'll hear from Columbia Threadneedle Investments, Gene Dinuzzo, PIMCO account manager Emily McGrath and Loomis Sayles fixed income manager Rick Raczkowski. I think success in 2025 will be defined by making sure. Portfolios are positioned to participate in lower rates as the Fed delivers them and also protect from potential downside should we see more economic volatility. I think the most important thing is that we don't need an incredible change in the macro economy for bonds to work for investors in 2025, you would get a tailwind should the Fed take interest rates lower, but it's not required. And for investors at this point, they can earn attractive yields and diversify their portfolios. Bonds historically. Form well once the Fed starts it's cutting cycle, especially when you compare the returns versus waiting in cash. I reference this chart in almost every client conversation because it allows you to see the tradeoffs between bonds and cash over various interest rate cycles. What you tend to see is that cash outperforms bonds only through the middle stages of a hiking cycle represented by these red bars. But when do bonds begin to outperform historically? Right around the time of the first cut, what we believe is even more important is the outperformance tends to persist for years. As you can see the green bars continue off the page. We think duration makes sense in the current environment. For example, duration works in our base case of a soft landing where inflation comes down and the Fed continues to ease and duration also works in more negative scenarios of a downturn or a growth scare. Now duration won't work in a situation where inflation is rising and the Fed begins to pause it's monetary policy. However, we put a relatively low probability on that scenario. As far as curve positioning, we think the best opportunities are in the five to 10 year area of the curve. We think this offers good yield and also. Enough duration to provide a buffer against more negative economic scenarios.