Mm-hmm.

Um, there are ongoing, and this has been highlighted by dissenters at the FOMC, uh, and at the Federal Reserve, um, you know, ongoing concerns about the stickiness of inflation.

I think we might have a slightly different view than, than, than, than some of those dissenters or, or, or the most hawkish, but there is this ongoing concern about, about the stickiness of, of, of, of, of inflation.

Um, and you put all of those events together and we've had a moment that has led to a backup in rates and, and a steepening of, of, of the yield curve.

Interestingly enough, I mean, I... and I just said that, that, that, um, uh, you know, part of it has been inflation concerns.

I think that's a perception of inflation concern, because this has really been a real rate event, right? So the real yield on inflation-protected bonds, as well as the nominal yield on nominal bonds, have both gone up almost in lockstep, and the market's pricing of, of inflation expectations hasn't really moved all that, all that dramatically.

So I, again, going back to our piece from, from a year and a half or two years ago, I, I think this is one of those flare-ups, um, that is increasing term premium, increasing that inherent risk premia in intermediate and longer term bonds, and, and, and is probably, um, setting up for some, some decent longer term returns and, and that was our, that was our point in the, in the, in the paper.

[laughs]

Mm.

I mean, interest rates rose, bonds went down in price, equities went down in price, credit spreads widened, credit underperformed throughout, largely throughout, throughout the year.

[clears throat] And even since then, I think a lot of folks go and look at sort of, you know, moments in time when, you know, there were sort of bouts of volatility and, and, and periods where stocks and bonds behaved, you know, with a positive correlation.

Their returns behaved with a positive correlation rather than negative correlation, and, and I think that leads many to, to conclude that, you know, this relationship, this benefit of diversification of fixed income, the theme of risk parity, owning a little bit of risk, offsetting it with a little bit of, of, of high quality fixed income or, or, or duration is, is forever altered.

And, and our point, which is the point of the simple bond math, is we shouldn't, as investors, we should care less about, you know, sort of brief moments in time and, and pockets of volatility.

And what we should care about are the big themes, the big i- the big risks, the big possibilities, and therefore the big opportunities, and that's the simple bond math, right? I mean, you do, you do the simple math of a, of a 10-year Treasury starting at four and a half or 4.6%, and when you need that positive return, it is not inconceivable that you will get a 10 to 20% immediate price appreciation through, you know, a decline in interest rates.

And, and that just takes yields from four and a half to two and a half, effectively, maybe a little bit lower than that to get a full 20%, but that math really works, and, and that's not an inconceivable scenario.

Mm-hmm