Monetary Matters with Jack Farley Harley Bassman: Bonds Are Fully Cooked Without an Imminent Recession
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Oct 1, 2024 
Harley Bassman, managing partner at Simplify Asset Management, dives into the intricacies of the bond market. He argues that bonds are 'fully cooked' without a recession on the horizon. Bassman shares his top trading strategies, emphasizing selling interest rate volatility and leveraging agency MBS. He discusses navigating mortgage bonds, the impact of Fed policies, and the importance of risk management in credit markets. Listeners gain insights into the dynamics of interest rates and the essential role of diversification in investment strategies.
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Long-End Rates Are 'Cooked'—Sell Rate Volatility
- Harley Bassman believes the long-end of the yield curve is "cooked": limited downside and low probability of much lower long rates.
- He argues selling interest-rate volatility via mortgages or callable agencies is attractive because implied vol is rich versus realized vol.
MOVE Is Rich Versus Realized Volatility
- The MOVE (interest-rate implied vol) is far above realized volatility, creating an opportunity to sell embedded optionality.
- Harley calls convexity the richest risk to overweight versus duration and credit right now.
Buy New‑Coupon MBS Near Par
- Buy newly issued (current-coupon) agency MBS near par rather than index-low coupon MBS to capture higher yields and sell near‑the‑money convexity.
- Harley says this strategy delivered better risk‑adjusted returns since launch and avoids selling tiny option premium embedded in discount coupons.