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00:00 Jared
and if we can go to the Wi-Fi Interactive, I’m just going to show you real quick a 30-year T-bond yield chart. This is year-to-date. And one of the things that happened was when long rates were creeping up above 5% and I’m circling them here, stocks kind of rolled over. They had a tough time with that. And, um, that’s just something that’s stuck out with me. So, I’m just wondering, are there any key levels in bonds that you’re looking for or is it the speed of the move? Kind of what should we expect here that might spill over into other risk markets?
00:39 Speaker B
Jared, a repeat of 2025. I think the bond market, especially the long end, 20 and 30-year bond prices and levels will be extremely key for the administration to watch out for. So we look at the difference between the 5 year and the 30 year, which is a clear indication of the steepness, which then is defined and directly looking into what the Fed is doing, as well as what the deficit situation here in the US is, which is deteriorating and doesn’t expect to get solved in a mid-term year like 2026. So that, you know, 5s 30s curve was negative 100 beginning of last year. It went up to positive 125 sometime this year, probably about four, eight weeks back, and is back up to that 110. We do think that, you know, that level could creep up, the fives to 30s yield level could creep up to 150 basis points in 2026, which will be a direct deficit situation issue that the market will bring it to the front and center.
01:29 Jared
All right. Now, translate that pain scenario for the bond market, um, into what we should be watching out for, like, how does an average investor play this or what should they be watching out for in terms of the headlines here in the new year?
01:50 Speaker B
No, quite a bit of markers, but if I can back up, 26 for us as an outlook for fixed income is going to be repeat of 2025, where fixed income allocations for clients and investors deliver on that dual mandate of fixed income. So the first mandate of fixed income is income and total return, which each and every high quality as well as low quality part of the fixed income market delivered on it very efficiently this year. And then the second part of the mandate or the second mandate out there for fixed income is negative correlation to risky assets during times of economic volatility. Exactly what the fixed income market did in 2025. So we see a very clear repeat in 2026 where the starting yields, which are the very clear high efficacy indicator of total returns are still around that 7 to 9% depending on the part of the fixed income market you’re looking at. That is what we think what 2026 will bring in. And then the zero to 10 year part, again, if you can avoid that 20 and 30 year part of the fixed income market, that delivers on that negative correlation to risky assets. So we do think that it’s poised extremely well with, you know, economy doing well, balance sheets doing well, and then the Fed is actually doesn’t have to cut that much for that dual mandate to be delivered for fixed income in 2026.