Where to watch for risks and opportunities in bond market as Warsh era at Fed begins

Added: 2026-05-23

[00:00:00]Are you seeing any signs that there could be a potential risk event to the markets for valuations or for anything else? You mentioned the strong earning season that we've seen, but this is also a market that has come really far, really fast since the war lows. Is there any fear that there could be some kind of a precipitous risk off scenario given what we know so far?

[00:00:23]I I would watch the 10-year. I really think that's sort of like there's a line in the sand. Once you cross, you know, 4.5%, you know, historically stocks have wobbled. Um but that's like on a very short-term basis. I mean, the strength of the US economy, you know, JoAnne has alluded to this. I mean, for sure, that is the reason why rate cuts have been priced down and out and why we have rate hikes on the table. Um you know, a new Fed chairman, you know, always, you know, kind of like signals some short-term volatility. I think we have to get used to kind of what he's thinking about the balance sheet reduction. But, you know, for for how we build portfolios, you know, we're sort of long-term in nature and the the strength of the US economy I think is going to continue. So, we like to lean in on that, but, you know, as I said, you know, we like the hyperscalers, right? Like we think you should own them, but incrementally on the margin start to like, you know, tilt towards other sectors and themes and asset classes because if the economy is strong as we're all agreeing on, you know, you know, lean where you have a margin of safety. So, that's some of these other themes that like JoAnne has talked about like in EM debt. I mean, our firm, we also like emerging markets, you know, quite a bit. Um so, you know, we're global in nature and that is actually helped portfolio construction. It hasn't hurt. So, you know, if you have the a tailwind of, you know, strong US economy, why do you just want to kind of go all in on like spies and Qs is kind of the point. You know, start to diversify away.

[00:01:49]Now, curious as well, JoAnne, from your point of view, one of the big stories that that we saw kind of play out over the course of the I guess the market story since the war began is this notion that even when we saw weakness in the equity markets overall, we did see some corresponding weakness to pretty much all other risk asset classes including high yield that you mentioned before. But was it surprising to you that the high yield fixed income market held up relatively better and markedly so versus the equity markets which a lot of people say that they tend to kind of trade more like sometimes. Has the high yield story maybe shifted a little bit so that there is always going to be this underlying demand for high yield debt no matter what kind of market environment we're in?

[00:02:38]I think it has to do with the fact that we are have the kind of the highest credit quality high yield market that we've had in its history over 56% of the market is rated double B.

[00:02:50]We've had really strong to to stable like leverage statistics and and balance sheet metrics is is really since the pandemic companies have focused management teams have focused on refinancing their debt as opposed to anything that is leveraging or more speculative. So you just we have a better quality high yield market. I'm not surprised that it didn't widen that much in spread with the equity market volatility. We're just we're in an environment right now where we do have like really sound fundamentals for the high yield asset class and it shows.