Evan Simonoff

What do fixed-income investors say when 15 years of sleepy interest rates suddenly perk up ?

NVESTORS ON MAIN STREET HAVE SPENT THE LAST YEAR REDIScovering what it ’ s like to earn interest on bond and money market funds . But for the professionals who manage these vehicles , a new series of frustrations are surfacing .

Bond managers have been conditioned by almost 15 years of ultra-low interest rates and the Federal Reserve ’ s efforts to hold off sharp declines in equites , what ’ s been called the “ Fed put .” Sooner or later , these investors assume , the central bank will bring rates down again , and they keep waiting for this pivot like unemployed actors waiting for Godot . That moment hasn ’ t come , yet neither has the recession many of the smartest minds in economics have expected .

Like the stages of grief , the acceptance of a new economic reality has proved challenging for bond investors and economists . But few have embraced the new circumstances as quickly as Loomis Sayles vice chairman Dan Fuss , who spent the 1970s managing Yale University ’ s endowment .

Fuss isn ’ t expecting double-digit inflation or interest rates . He does , however , expect a subdued replay of the 1970s — that inflation will rise in several mini-cycles and the fed funds rate will climb into the high single digits later in this decade .

16 | FINANCIAL ADVISOR MAGAZINE | NOVEMBER 2023 WWW . FA-MAG . COM