Fixed Income Market Update

October 28, 2022

The fixed income markets are abuzz with the potential of a Fed Pivot, or the idea the Fed might change from hiking to pausing to cutting. We say, will the Fed just relent? The Fed, focusing on not repeating the mistakes of the 70’s, is quickly raising rates to a potentially restrictive level, and, more and more economists think, pushing the economy into recession.

More importantly, the size and number of hikes has started to cause problems in the global financial system. Some have been direct, like the strength of the dollar against most other currencies, exacerbating the already inflated commodity prices, to be even higher as commodities like oil, copper and corn are traded in dollars. Others have been indirect, like the pension crisis in the UK that caused the Bank of England to step in and buy long term Gilts to support the pound, the bond market and many UK pensions that fell awry of a poor hedging strategy. Issues like these had a few Fed participants questioning the pace and the benefits of a near term pause to let the prior cuts take effect. However, the strength of the GDP report and the Employment Cost Index reported this week support the current path of higher for longer.

Currently, the CME Fed Watch Tool indicates the Fed will increase 75 bps at the November 2^nd meeting 50 bps at the December 14^th meeting and 50 bps in February of next year. While not showing signs of relenting, the market does seem to think the Fed will do those three hikes and pause around the 4.75-5.00% level. The last time we were at 5%? 2006, when the Fed cycle topped out at 5.25%.

We expressed concerns in the past and those concerns continue today, the likelihood of a recession grows more likely. Currently, the stage is set for a mild recession, but if problems keep showing up in the global financial system, a mild recession may be the best we can hope for.

Come on Chairman Powell, Just Relent!

-Peter Baden, CFA
Chief Investment Officer

Click on the above links for more information on important investment and economic concepts.

---

CME Fed Watch Tool

---

---

Contact Genoa Asset Management

---

Disclosures

Indexes used for AAA Municipal Yields

2 Year: BVAL Municipal AAA Yield Curve (Callable) 2 Year (Symbol: CAAA02YR BVLI)

5 Year: BVAL Municipal AAA Yield Curve (Callable) 5 Year (Symbol: CAAA04YR BVLI)

10 Year: BVAL Municipal AAA Yield Curve (Callable) 10 Year (Symbol: CAAA10YR BVLI) 

30 Year: BVAL Municipal AAA Yield Curve (Callable) 30 Year (Symbol: CAAA30YR BVLI)

Indexes used for US Treasury Yields

2 Year: US Generic Govt 2 Year Yield (Symbol: USGG2YR)

5 Year: US Generic Govt 5 Year Yield (Symbol: USGG5YR)

10 Year: US Generic Govt 10 Year Yield (Symbol: USGG10YR)

30 Year: US Generic Govt 30 Year Yield (Symbol: USGG30YR)

F/m Investments, LLC, doing business as Genoa Asset Management (Genoa), is an investment advisor registered under the Investment Advisers Act of 1940. Registration as an investment adviser does not imply any level of skill or training. The oral and written communications of an adviser provide you with information about which you determine to hire or retain an adviser. For more information please visit: https://adviserinfo.sec.gov/ and search our firm name. The opinions expressed herein are those of Genoa and may not come to pass. The material is current as of the date of this presentation and is subject to change at any time, based on market and other conditions. The information presented in the material is general in nature and is not designed to address your investment objectives, financial situation or particular needs. Prior to making any investment decision, you should assess, or seek advice from a professional regarding whether any particular transaction is relevant or appropriate to your individual circumstances. The information presented does not involve the rendering of personalized financial, legal or tax advice, but is limited to the dissemination of general information for educational purposes. Please consult financial, legal or tax professionals for specific information regarding your individual situation. This information does not constitute a solicitation or an offer to buy or sell any securities. Although taken from reliable sources, Genoa cannot guarantee the accuracy of the information received from third parties. Charts, diagrams, and graphs, by themselves, cannot be used to make investment decisions. Investing involves risk of loss, including loss of principal. Past performance is no guarantee of future results. An index is a portfolio of specific securities, the performance of which is often used as a benchmark in judging the relative performance of certain asset classes. Indexes are unmanaged portfolios and investors cannot invest directly in an index. An index does not charge management fees or brokerage expenses, and no such fees or expenses were deducted from the performance shown.