DoubleLine

In his Oct. 8, 2024, macro review, DoubleLine Deputy CIO Jeffrey Sherman finds the U.S. economy “is still in a decent spot,” albeit amid pockets of pain, including small businesses, and weakness among consumers. As for markets, he reads no imminent stresses in equity or even bond volatilities in addition to seeing fairer bond prices with U.S. Treasury yields above 4%, setting up an interesting market both for high-grade bonds and credit. https://lnkd.in/gV5tNiiX

Last week the Federal Reserve initiated its first policy rate cutting cycle in over four years reducing the Fed Funds rate by 50 basis points (bps). This larger-than-expected cut reflects substantially lower inflation and concerns about the state of the economy.?Market projections now expect the Fed to lower its key policy rate by another 210 bps for a total of 260 bps by the end of 2025, bringing the Fed funds rate below 3%. How does the expected path of policy rates compare to previous Fed cutting cycles? #Fed #rates #markets

With the S&P 500 ending September at a 36 CAPE ratio, DoubleLine Portfolio Manager Ken Shinoda, CFA Oct. 8, 2024, concludes now is “definitely a time to start looking at the market for a potential chance to add some fixed income to your portfolio.” https://lnkd.in/gQwzczJz

This year’s Golden Week is particularly notable. In the final week of September, Chinese authorities announced a significant stimulus package targeting monetary policy, property markets, and equity markets. As a result, the MSCI China Index surged by 21% in the lead-up to the holiday. This week’s chart compares nominal Gross Domestic Product (GDP) year-over-year growth rates in the world’s two biggest economies—China and the United States.

For much of the post-World War II era, whenever the Federal Reserve began to cut its policy rate, long term interest rates quickly followed suit and also saw declines in yields, leading to strong returns across fixed income markets especially in longer duration bonds. With the Federal Reserve expected to start cutting rates next month, a question arises: will longer-term interest rates behave similarly this time?

Macroeconomic data and high frequency asset-backed securities (ABS) data analyzed in September 2024 by DoubleLine Portfolio Manager Andrew Hsu and ABS Trader Michael Fine show a persistently resilient U.S. consumer. In “The State of the U.S. Consumer Through the Lens of Asset-Backed Securities,” Messrs. Hsu and Fine attribute the consumer’s resilience to “the strength of the residential mortgage market, a robust labor market and the excess savings accumulated during the pandemic.” Notwithstanding that strength, the authors note that “potential risks to the consumer persist, including the depletion of these savings, wage stagnation, a recent rise in unemployment and ongoing high consumer prices, notwithstanding cooling in the year-over-year rate of inflation.” Amid that conjuncture of consumer resilience and economic risk, DoubleLine, they write, continues “to find attractive relative value in select areas of the ABS consumer market. While prepayments, defaults and loss severities require close monitoring, they all remain within reasonable historical average moving bands.”

In recent years, market participants have closely monitored and highlighted the gap between U.S. gross domestic product and gross domestic income. Although these two measures of economic activity should theoretically align, they had diverged. Last week, the Bureau of Economic Analysis (BEA) released revised estimates of second-quarter GDP and GDI along with annual benchmark revisions. These revisions significantly narrowed the gap, with GDI now outpacing GDP. #economy #growth

Last week the Federal Reserve initiated its first policy rate cutting cycle in over four years reducing the Fed Funds rate by 50 basis points (bps). This larger-than-expected cut reflects substantially lower inflation and concerns about the state of the economy.?Market projections now expect the Fed to lower its key policy rate by another 210 bps for a total of 260 bps by the end of 2025, bringing the Fed funds rate below 3%. How does the expected path of policy rates compare to previous Fed cutting cycles? #Fed #rates #markets

DoubleLine’s Ken Shinoda, CFA visits “The Close” to talk the Fed’s rate cut and what that could mean for fixed income investors.

The yield curve has been a hot topic, with ongoing discussions about the implications for economic growth.?One of the most watched curve spreads is the yield spread between the 10-year and 2-year U.S. Treasury (2s10s), which has steepened materially since June and now has a positive slope for the first time since July 2022. Commentators have cited that this ‘re-steepening’ or ‘de-inversion’ of the curve, following a prolonged period of inversion, signals elevated risk of recession in the near-term. But is that the whole story? #rates #markets #Fed