Life After Zero: Reassessing the Role of Sovereign Bonds with Negative Nominal Yields

Nominal high-quality sovereign bond yields throughout developed markets have plummeted toward zero, increasing the likelihood that most developed markets may soon need to contend with negative yields, and leading investors to question whether high-quality sovereign bonds are still the best form of insurance. In light of these developments, we examine the historical safe-haven characteristics of high-quality sovereign bonds and assesses whether they remain a viable safe-haven asset.

April 2020

VantagePoint: Is It Time to Overweight Equities?

In periods of market stress, it can be difficult to rebalance, much less overweight risky assets like equities. In this paper, we review our approach using multiple lenses: magnitude and duration of drawdowns relative to history, cheapness of valuations, and presence of pre-conditions for markets to begin their ascent. Such an approach can help investors tune out the emotion and dial in on the hard data and most probable outcomes even in the face of great uncertainty. While opportunities are developing across many markets, investors should hold off on broad overweights to risky assets at this time.

April 2020

The Complex Relationship Between Inflation and Asset Prices

March 23, 2020— As we write in March 2020, COVID-19 is spreading across much of the world, undercutting economic activity. While how this situation will unfold is not entirely clear, we have long believed that the best way to guard against future uncertainty is to have a well-constructed portfolio. One key component in that is understanding the relationship between asset prices and inflation.

March 2020

VantagePoint: The Bear Awakens

March 18, 2020—The bear has finally come out of his long hibernation, causing us to dust off our playbook for weathering bear markets.

March 2020

Rate Cuts Are No Vaccine

March 16, 2020— The Federal Reserve Bank has announced a host of emergency measures intended to improve bond market liquidity and reduce borrowing costs, which come in response to rising signs of dislocation across Treasury, municipal, and corporate bond markets.

March 2020

Europe Escalates Its Response to the Coronavirus Outbreak

March 13, 2020— This week, the Bank of England and the European Central Bank both announced stimulus measures aimed at responding to the growing impact of COVID-19.

March 2020

Treasury Bond Yields Plunge to Historic Lows

March 9, 2020—Yields on ten-year Treasuries dropped below 50 basis points (bps) today for the first time in history as COVID-19 fears spread. While we cannot rule out a recession, given the uncertainties associated with the virus and its impact on economic activity, we believe today’s low yields are less about long-term growth forecasts and more about expectations of further Federal Reserve easing, risk aversion, and liquidity preferences.

March 2020

The Fed Eases as Virus Concerns Grow

March 3, 2020—The US Federal Reserve cut its policy rate by 50 basis points today, highlighting the serious challenges facing the global economy. Still, we don’t believe investors should cut risk. Very few have an informational edge regarding COVID-19’s market impact, and investors could be left underexposed when and if markets rebound.

March 2020