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Lead-Lag Live

Harley Bassman on Bond Market Dynamics, Derivative Strategies, and Long-Term Interest Rate Trends

Sep 27, 2024
Harley Bassman, a Wall Street veteran with a rich background from Merrill Lynch to Simplify Asset Management, dives deep into the bond market's dynamics. He elucidates how Fed funds rates relate to inflation and long-term bonds, shedding light on market stability. The discussion transitions to innovative derivative strategies within ETFs, making sophisticated tools accessible even to everyday investors. Bassman also examines the complexities of mortgage rates, their effects on housing, and the current economic outlook, providing valuable insights for savvy traders.
47:00

Episode guests

Podcast summary created with Snipd AI

Quick takeaways

  • The bond market is experiencing challenges with the relationship between Fed funds rates and two-year notes, affecting long-term interest predictions.
  • Innovative derivative strategies within ETFs are democratizing investment opportunities, allowing everyday investors to access sophisticated financial tools previously reserved for hedge funds.

Deep dives

Current Bond Market Dynamics

The bond market is experiencing a significant phase where the traditional relationship between Federal Reserve funds and yields on two-year notes appears to be challenged. With current inflation at 2%, the implied interest rates suggest that two-year notes should be around 3% while the ten-year notes sit at approximately 365-370 basis points. Market sentiments indicate that the back-end yields are unlikely to decrease significantly unless there is a severe economic downturn. Without a drastic shift in the Federal Reserve's approach, particularly regarding future interest rate targets, predictions suggest that further declines in longer-term bond yields may not happen.

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