Bonds Offer Attractive Returns Across Economic Scenarios

Key Quotes

"Yesterday we got two things we got the establishment survey told us headline employment rose 64 000 in November after falling 105 000 in October if we didn't know what was going on that would give us some concerns the negative 105 that was really due to dodge and deferred resignations so we can say okay that's government we are not concerned that this is going to be a repeated forever this is something going on in the economy that we have to be more worried about"

Lindsay Rosner explains that the November jobs report showed a positive headline employment increase after a prior month's decrease. Rosner clarifies that the prior negative number was attributed to specific government-related factors, suggesting it is not indicative of a broader economic downturn. This interpretation aims to alleviate immediate concerns about the economy based on the headline figures.

"Well really important to unround and care about what happens after the decimal so really um one was rounded down one was rounded up the the number yesterday was 4 56 so it's actually 12 basis point difference so let's we need to take a breath calm down all of these things tell us there's a little bit of fogginess in the data given the shutdown but overall the story is we're not super concerned about the labor market it is definitely the thing that the fed is focused on but we aren't concerned that it is falling off a cliff"

Lindsay Rosner advises focusing on the precise figures rather than rounded numbers when interpreting economic data, particularly the unemployment rate. Rosner suggests that apparent shifts in the unemployment rate are minor when unrounded and that data may be "foggy" due to external factors like government shutdowns. Rosner concludes that despite some softness, the labor market is not a cause for significant concern.

"So January feels to us to be off the table but we do think next year in totality probably sees two cuts"

Lindsay Rosner expresses a view on future Federal Reserve interest rate policy. Rosner believes that a rate cut in January is unlikely, but anticipates that the Federal Reserve will implement approximately two rate cuts over the course of the following year. This projection offers insight into the expected monetary policy trajectory.

"And when we think about bonds it's not just do we like bonds it's do we like bonds and where so in terms of our outlook we think this is still a good time for bonds"

Lindsay Rosner emphasizes that the attractiveness of bonds depends not only on the asset class itself but also on specific positioning within the bond market. Rosner maintains a positive outlook on bonds, suggesting that the current environment remains favorable for investing in fixed income. This highlights a nuanced approach to bond investing.

"And how do you benefit you benefit when you have duration and you're in bonds now back to the where do you want to be in bonds you want to be in the belly of the curve back at that 10 year point or the 30 year point we're concerned about that potentially going higher not just a us thing by the way term premia as they call it is moving higher across the globe so intermediate duration we like that and that would be i guess on my vision board 2026"

Lindsay Rosner explains how investors can benefit from holding bonds, particularly those with duration, in certain economic scenarios. Rosner suggests that the "belly of the curve," referring to intermediate-term bonds like those around the 10-year maturity, is a favorable position. Rosner notes that rising "term premia," the compensation investors demand for holding longer-term debt, is a global trend, reinforcing the preference for intermediate duration.

"The yield is really coming from the base rate it's not coming from credit spreads credit spreads are really tight they're at some of the tightest percentiles if you do a 10 year look back so not saying that credit is a bad choice but we really like having that kind of duration and having what we think will be the fed on your side in either outcome of the economy"

Lindsay Rosner asserts that current bond yields are primarily driven by the underlying interest rate ("base rate") rather than credit risk premiums ("credit spreads"). Rosner points out that credit spreads are currently very narrow, historically speaking. While not dismissing corporate credit entirely, Rosner favors holding duration in bonds, anticipating that the Federal Reserve's policy will be supportive regardless of the economic outcome.