Today Jack Farley welcomes two financial heavyweights who, in Jack’s view, have predicted and understood this year’s sell-off in bonds more accurately and clearly than anyone else in finance: Harley Bassman, founder of the MOVE Index and managing partner at Simplify Asset Management, and Joseph Wang, former senior trader for the Federal Reserve.
Bassman and Wang agree that it is likely that short-term interest rates are close to peaking, but that long-term bonds remain vulnerable to the triple threats of convexity, illiquidity, and duration.
Wang argues that the illiquidity in the U.K. gilt market might be a harbinger for the other sovereign bond markets around the world (including the U.S. Treasury market), and Bassman shares several parts of fixed-income that he personally finds attractive, such as AA 22-year callable municipal debt and agency mortgage-backed securities. Filmed on October 6th, 2022.
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Bassman is the creator of the Simplify Interest Rate Hedge ETF ($PFIX), which, on a total return basis as of October 6th, 2022, is up 80% year-to-date and is up 35% since inception in September 2021. Wang’s writings can be found at https://rb.gy/oocxuz and Bassman’s latest commentary as “The Convexity Maven” can be found here: https://rb.gy/xbibuj.
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(00:00) Introduction
(01:00) Is The Sell-Off In Sovereign Bonds Finally Over?
(11:57) Risks in The Stock Market
(13:53) When Will Powell Pivot?
(18:45) The Housing Market Is Already Broken
(20:37) What Will Be The First To Break?
(28:08) “Bittrex Ad”
(28:42) What Will Be The First To Break?
(28:45) How To Hedge Against A Bond Market Sell-Off
(34:39) Bullish on High-Rated Long-Term Municipal Bonds
(40:31) The Mortgage-Backed Security (MBS) Market
(48:12) If Something Breaks, What Will The Fed Do?
(52:33) Questions From The Audience
(55:29) Recession Risk and Inverted Yield Curves
(59:05) Joseph Wang's Take On What Happened In The U.K. Gilt Market
(1:02:38) Will Commercial Banks Lose Money?
(1:04:21) Reverse Repo Facility
(1:05:07) Titanic: Has The Fed Hit An Iceberg?
(1:08:17) How High Will The Fed Hike To?
(1:09:31) Outro
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Disclaimer: Nothing discussed on Forward Guidance should be considered as investment advice. Please always do your own research & speak to a financial advisor before thinking about, thinking about putting your money into these crazy markets.
Forward Guidance