Jeffrey Sherman on Fixed Income Asset Allocation

Описание: In his Oct. 11, 2022, fixed income “Asset Allocation” webcast, DoubleLine Deputy Chief Investment Officer Jeffrey Sherman starts (0:35) with a review of global and U.S. GDP. Noting the year-over-year change Leading Economic Index turned negative in August (10:29), he says “this definitely puts us on some form of recession watch.” Turning to the tools available to the Federal Reserve, Mr. Sherman surveys M-2 money supply and velocity (12:53), noting supply is being curtailed after an unprecedented 27% year-over-year expansion to offset the economic lockdown while velocity, while near all-time lows, has been rising in 2021-2022. The real fed funds rate (14:21), while still negative at -5.7%, is off its all-time deepest level of -8.3%.

Turning to core inflation (17:55), Mr. Sherman notes that goods inflation has been decelerating and trade bottlenecks have been easing (27:34). However, he says that services inflation from pent-up demand and higher shelter costs likely mean core inflation will run higher than Fed targets for the foreseeable future. Turning to the fixed income universe (37:15), Mr. Sherman notes 2022 was by far the worst year on record for bonds. “This is what happens when you start with very lows yields, and you enter into a reflationary regime where the Fed is undeterred in hiking.” In the wake of that repricing, Mr. Sherman sees opportunities to reap double-digit yields upside in pockets of credit while offsetting recession risk with Treasuries and/or Agency mortgage-backed securities that offer positive carry. With careful security selection, Mr. Sherman says, interesting credit sectors include bank loans (45:58), collateralized loan obligations and commercial mortgage-backed securities (47:27)
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