Quarterly Strategy Update: The Investment Consequences of a Normalization in Long Rates - Knowledge Leaders Capital

Quarterly Strategy Update: The Investment Consequences of a Normalization in Long Rates

October 25, 2018

By Knowledge Leaders Team in Economy, Markets, Portfolio Management

On this quarter’s conference call, Steve and Bryce dissected US Treasury bonds, discussing the message of the rates market and how this is directing asset allocation. The following slide deck covers their discussion of the following:

The bond market has enjoyed a 10-year tailwind from a collapsing term premium. We believe this is probably over and is being driven by three significant trends.
The bond market seems to have embraced a normalization in short rates on the back of fiscal stimulus, but investors may be behind the curve when it comes to long rates. We believe the foundations for a higher term premium are in place, something investors haven’t dealt with in a decade.
Investing in an environment of a rising term premium is difficult. There are few equities or fixed income securities that perform well and risk management is difficult.
We believe the trade war is having multiple economic impacts on growth and inflation, widening the range of possible outcomes for risky asset prices.

Download the slides here: The Investment Consequences of a Normalization in Long Rates.

Print Friendly, PDF & Email

Tags > Bonds, Term Premium, trade war

Archives

Disclosures

The information presented here is for informational purposes only and is not to be construed as an offer to sell, or the solicitation of an offer to buy, securities. Some investments are not suitable for all investors, and there can be no assurance that any investment strategy will be successful. Hyperlinks may be included in this message that provide direct access to other internet resources, including web sites. While we believe these links are to reliable sources, Knowledge Leaders Capital (“KLC”) has no control over the accuracy or content of information contained on these sites. Although we make every effort to ensure such links are accurate, up to date and relevant, we have no control over pages maintained by external providers. The views expressed by these external providers on their own web pages or on external sites they link to are not necessarily those of Knowledge Leaders Capital.

The information provided on this blog is for illustrative or example purposes only and should not be construed as KLC’s opinion or investment outlook. As of the most recent quarter end, the named companies may have been held by KLC. For full information including additional policies and full disclosures, please visit our website: KnowledgeLeadersCapital.com.

Any reference to Index performance does not represent the performance of any investment product offered by Knowledge Leaders Capital, LLC. An investor cannot invest directly in an index. The performance of client account may vary from the Index performance. Index returns shown are not reflective of actual investor performance nor do they reflect fees and expenses applicable to investing.

Companies are selected for “Spotlights” based on high levels of innovation activities in their respective industries and illustrate innovation being employed across all sectors and geographies. Spotlight selection is separate from stock selection by the investment team. Spotlights are not necessarily representative of investment opportunities and can be selected regardless of investment performance or inclusion as a KLC holding.