Navigating the Bond Market Rollercoaster: Diving into 2023's Volatility

Master the intricacies of the bond market in our riveting discussion with bond expert, Mr. Keith Lante. We'll guide you through the complex world of supply and demand, shed light on the federal budget deficit's influence on bond supply, and the implications of decreased capital gains due to tax cuts. The conversation takes an insightful turn as we scrutinize the impact of heightened government expenditures on social security, health benefits, and defense on the bond markets, bridging into the inherent volatility, risks, and opportunities that come with fixed income investment.

In the latter half of our discourse, we pivot our attention to the Treasury's borrowing estimates, refunding news, and their prospective bearing on the bond market. Mr. Lante offers a brilliant analysis of current yields across various markets including the Treasury market, high-grade corporate bonds, junk bonds, and Treasury inflation-protected securities. We further touch on international events including the Israeli forces' incursion into the Gaza Strip and comments from the Iranian President. As we reach the end of our enlightening journey, we consider the opportunities offered by active management and individual securities investments versus ETFs in the fixed income market. So, tune in and gear up for a comprehensive and enlightening exploration of the bond market.

** For informational and educational purposes only, not intended as investment advice. Views and opinions are subject to change without notice.

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Transcript

Alan Eppers: 0:00

And now introducing Mr Keith Lanton.

Keith Lanton: 0:04

Good morning. Today is Monday, October 30th, one day before the end of the month and before Halloween, so we've got about two months left in 2000 and 23 certainly has been a eventful year. This morning we are going to once again talk about bond market fixed income yield. I think it's the most interesting aspect of the financial market today. We're going to talk about some of the economics of bond market, talk about supply and demand, of what's taking place and perhaps get some understanding of what's driving the yields to where they are as we approach 5% again on the 10-year, and talk about the opportunities, the risks, the challenges. Brad will also give us further insight into the fixed income market as things have gotten, in my opinion, increasingly interesting. We'll also talk, of course, about the stock market, the equity markets and commodities and all the other aspects of financial investing. This morning, and fixed income, we've seen that yields go from a half of 1% on the 10-year treasury to just about 5%. We're talking about a magnifold increase of 10 times. We have seen the greatest bear market that most market participants currently engaged in financial markets have ever seen in bonds, something that is not supposed to happen. Bonds are supposed to be boring and stable, yet this year the volatility index in bonds is exceeding the volatility index in stocks, swinging more per day than stock prices are swinging per day. So what's going on? Let's try and take a look into a deep dive and see if we can understand this further, and then take a look and see what we can do to take advantage of it.

Keith Lanton: 1:57

So the first thing we have to think about in the bond market is supply and demand. Very simple, you could think of it not very different than someone who wants to buy tickets to Taylor Swift. You don't need a PhD in economics to understand the dynamics of supply and demand. There's a fixed amount of folks who want to buy something at a certain price and the market is going to decide how much it's going to supply at a specific price. So let's talk about the supply.

Keith Lanton: 2:22

What's been going on in the bond market is supply has been increasing, and this supply is one of the big topics in Washington DC, and this has to do with the federal budget deficit. And as the budget deficit increases, as we borrow more money, we need to issue more bonds in order to finance the government and keep things humming. So the amount of debt outstanding since the COVID epidemic has gone from about $22 trillion to, an hour, almost $34 trillion, and I think what the market is most focused on isn't necessarily that $34 trillion, which is a big number, but what is the direction? Which way is it going? And what we are aware of is that last year, in a strong economy, we had a $1 trillion deficit approximately and factoring out student loans, from all this talk and now we've got a $2 trillion deficit. This year Seems to be. Things aren't going in the right direction, even though we just had a GDP number last week 4.9% growth. Yet here we are running big budget deficits, typically when the economy's strong deficits are lower, when the economy's weak government primes the pump and we get bigger deficits. So big concerns, strong economy, big deficit. So real, simple, what's going on?

Keith Lanton: 3:35

Let's take a look at receipts. We're taking in about $4.5 trillion at the federal level in receipts. This could be the business, this could be your house. You could think of it as $450,000,. You could think of it as $45,000 if you want to put it in terms that fit your personal situation. But we're talking here $4.5 trillion coming in and we got going out $6.5 trillion.

Keith Lanton: 3:56

$2 trillion deficit. Last year, $1 trillion deficit. Why the difference? What's happened? Well, what's happened is our receipts have gone down by about $500 billion and our spending has gone up by about $500 billion just in the past year. Why have receipts gone down? Well, one of the primary drivers for receipts coming down is that we are taking in less money as a result of us paying less in taxes. Why are we paying less in taxes? Well, last year was a week here in the stock market a lot less in capital gains. We also had tax cuts kick in. Corporations aren't paying as much in taxes. The tax receipts down about $400 billion. On top of that, the Federal Reserve kicked in the previous year about $100 billion to reduce the deficit on the revenue side. Why? Because the Federal Reserve is buying bonds earning interest. Those bonds have been appreciating in value. Now we know interest rates are higher. Federal Reserve is contributing a lot less, almost zero. That's about $100 billion less $400 billion roughly and less receipts $100 billion less from the Fed. We've got $500 billion in less in receipts this year.

Keith Lanton: 5:03

Now let's go to the spending side. What's taking place in spending? The biggest increase in spending? Well, you guessed it, it's our interest on the debt $200 billion higher. Concern is that that number is going to be higher again next year as interest rates have increased, almost invariably will be. So we've got $200 billion in increased deficit spending as a result of interest. We've got about another $100 billion as a result of the bailouts or the helping of the financial banks when we had some of the banks fail here. So the FDIC and the Pension Benefit Guarantee Corporation chipping in about $100 billion this year. That takes us up to about $300 billion, and the remaining $200 billion is predominantly the result of increased spending in social security and health benefits. Defense is about $50 billion. You put it all together and we see the increase taking place there.

Keith Lanton: 5:55

What the markets have fixated on is well, they see health benefits going up. They see social security going up. They know that the population is aging. That's not going to improve. They see that the spending on interest is going up. They see interest rates have gone up, but that's not looking like it's going to improve. Therefore, there's a lot of concern that the spending side is not going to get better unless Congress takes some action on reducing some of their spending.

Keith Lanton: 6:19

And the problem is is that the big spending about $3 trillion of the spending is on Medicare, medicaid and social security Only about $1.2 trillion. So let's put that in perspective. About $1 trillion is everything else, all the other things that we hear politicians talk about running the federal government, all the benefits programs that are out there. Certainly potential, in my opinion, that we could cut some of that. But again, even if you're talking about a 10% or 20% cut, you're talking $100 to $200 billion and that's significant cuts to those programs. Without cuts to social security, medicare or Medicaid those third rails it's going to be real challenging to reduce the spending side. On the flip side without raising taxes, it's going to be real tough to raise the revenue side. So here's the limit for the markets running big deficits, some challenging choices ahead for the economy. So big deficits didn't matter.

Keith Lanton: 7:14

Before we talked about this last week, we had previously talked about the fact that we have buyers shifting in the markets. Before we had this increased supply of bonds and this increased supply of bonds was getting absorbed by buyers like the US Treasury, foreign central banks and US banks, who were taking in big deposits. So all of a sudden we had an increase of supply. But it was OK. Demands were still very strong. Think of this like a Taylor Swift concert. We're going to increase the number of tickets, but we have so many bar buyers that are willing to buy even at these elevated prices. Elevated prices in the bond market mean low yields. So we were increasing supply but we had increasing demand, not a problem. But now what's happening is those buyers those premier Taylor Swift ticket buyers who are willing to buy at almost any price, are suddenly saying we've got enough Taylor Swift tickets, we don't need to add to our Taylor Swift number of tickets.

Keith Lanton: 8:13

So what do we have to do? We have to entice new buyers. We've got to bring in other folks who are perhaps going to other concerts or are sitting on their TV, watching their big screen TV and enjoying Netflix entertainment. We've got to drag them out of their houses, get them to Taylor Swift concerts. Are we going to do that? They're not willing to pay $1,000 a ticket. They're not willing to accept, in other words, 2% interest on a 10-year bond. We got to erase that rate to 3% in order to get these folks engaged.

Keith Lanton: 8:38

And those are the private buyers in the bond market. And we're starting to entice them. We've got 5%. There's lots of interest in 5, 5.5% T-Bills. We are enticing these new buyers into the market. In fact, individuals have increased their holdings of Treasury securities by about $2 trillion in the last year, but in order to bring these folks into the marketplace it's not PhD in economics you got to lower the price or increase the yield in order to bring these folks into the marketplace.

Keith Lanton: 9:09

So before in the bond market, we had high demand from the aforementioned buyers relative to supply. Now we have lower demand and we have higher supply because we are increasing our deficit every year. All of a sudden, we have people who don't want to see Taylor Swift at those elevated prices and what we have done is we have had to drive down the prices of those tickets in order to drive individuals into those seats. In other words, we have raised the rate that we're going to pay, we have reduced the price and all of a sudden we're getting more people attending the concerts, we're getting more individual investors buying those Treasury securities at these elevated yields and now we're looking at 5%. So what's the market worried about?

Keith Lanton: 9:54

Well, this week the market's real worried about New issuance, more supply coming. So this week the Treasury is going to announce what they expect to issue in terms of Treasuries, and the expectation is that the Treasury is likely to boost the size of auctions for bills, notes and bonds in the fourth quarter when it announces its financing plans this week to fund a worsening budget deficit. So if you've been wondering why perhaps yields have been taking higher, we've been running up to this 5% rate, well, a lot of that may have to do with what's coming out this week. What does it look like the Treasury is going to do in terms of supply? Because, as we said, if supply is increasing, what do you maybe have to do? You might have to make the prices lower, which means higher yields. So investors are paying close attention to this week's quarterly refunding announcement, as a sharp jump in long-term Treasuries has been partly attributed to concerns about the US fiscal deficit. We just talked about that high deficit. More supply Since the end of July, the 10-year yield has climbed more than 100 basis points.

Keith Lanton: 10:56

The spotlight will be on today's announcement of borrowing estimates for the fourth quarter and for the first quarter of 2024. It was the announcement on July 31st of $1 trillion in funding needs for the past quarter, for the third quarter that spooked the bond market, led to the big sell-off. We saw rates go from the high 3s to 5% on the 10-year and that led to a big reset or change in mindset in terms of what do we need in terms of interest rates in order to clear this market. So today at 3 o'clock, the Treasury is going to release its borrowing requirements and it will release its refunding news on Wednesday at 8.30. The Treasury is also likely to announce a buyback program for a possible launch in January, aimed at improving bond market liquidity. The last time it conducted a regular buyback program was in the early 2000s and it ended in April of 2022.

Keith Lanton: 11:51

What could we see from the Treasury? We could see the Treasury skew issuance to shorter-term T-bills, while the increase at the long end could shrink due to concerns about the impact of additional supply, which we just talked about this supply and demand on long-term yields. This would be a change in what the Treasury did in August. Perhaps the Treasury will look at August and say you know what? We issued too much in long-term debt. The market couldn't digest. It pushed up those long-term rates. So if we see a change and the Treasury decides to issue more bills instead of bonds of notes meaning more short-term debt instead of long-term debt when they announce their refunding and how much they're going to refund and what it's going to look like structurally. That may have a meaningful impact on bond prices in the near term. So what does all this mean in terms of where the bond market is going and how you, as an investor, should be positioning your portfolio?

Keith Lanton: 12:43

Well, let's talk about what Barron said this weekend and what their opinion was. Well, front page of Barron's was all about bonds and the cover story said it's time to stop crying about bonds and buy them instead. They said rarely in American history has it been this bad for bonds and rarely has it been such an opportune time to buy. They said the bond route has been brutal, which we know. Supposedly ultra-safe Treasuries are on track to lose money for three consecutive years, declining 42% over that period. We talked about this before huge bear market in long-term Treasuries, 40% decline. If this was stocks, it would be front page news, front page of Barron's, not necessarily front page of other publications. Other bonds where the mortgage-backed securities are high-quality corporates have also taken a beating, leaving investors with losses in an asset class that is supposed to provide ballast in a portfolio.

Keith Lanton: 13:35

But consider what may come next the end of the bond bear market while long-term yields of spike, lately pushing the 10-year Treasury up to 4.9% from the high threes in July. The Federal Reserve maybe nearing the end of its campaign to raise interest rates. Traders see only a 25% chance of another rate hike this year, perhaps at the December meeting. Hedge fund manager Bill Ackman, prominent bond bear, recently closed out his bets against the Treasury. What's more, continued geopolitical unrest or signs of recession could restore the core market, government-backed debt and high-grade corporate bonds to its position as a haven, a role that it has abdicated in recent years. Since starting, yields are higher, there is more cushion against losses, including interest income, and with rates stabilizing, bonds could start to play a positive role once again.

Keith Lanton: 14:25

The bull case starts with the fact that today's entry point is the best it's been in years. Yields across the Treasury market about 5%, highest since 2007. High-grade corporate bonds pay an average of 6.3% Yield, not seen since the mid-2009s. There's someone in the 24% bracket, a 30-year municipal with a triple A rating, and this doesn't even take into account any state tax you might be paying. That's equivalent to a 6.1% yield on a taxable investment. One category of bonds that's not quite as attractive, they go on to say, are junk bonds, which are yielding near 9%, but their spread over treasuries is fairly narrow, indicating that they are not a cheap asset class. As bond prices decline, their yields climb and end to the bear market, which would send prices higher, yields lower.

Keith Lanton: 15:15

Higher yields can solve a lot of problems. If inflation was still running at 9%, the income generated by bonds would be of scant use, as higher prices would wipe out purchasing power. Even 5% inflation would make it a wash. Inflation, though, isn't the worry. It was just a little while ago. Treasury inflation protected securities at tips maturing in five years and 10 years of pricing and inflation rates of just 2.5%. That implies that inflation expectations are well anchored and at those levels treasuries are generating about 2.5% after inflation. We're currently experiencing the first time really yields have been meaningfully positive in over a decade. We're also experiencing a yield cushion, especially in corporate credit, which provides a bulwark against rising rates. So at over 6%, a basket of investment-grade corporate bonds maturing in just one to five years could withstand a 3.25% point increase. So that means if the treasury 10-year yield would go from 5% to 8%, we'd still experience a positive one-year return in the average investment-grade corporate bond because of that high interest rate that we're earning that 6% plus interest rate.

Keith Lanton: 16:24

There's even a chance that bonds get back to acting as shock absorbers, dampening volatility in a portfolio. That hasn't been the case recently, as bond and stock prices have tended to move in the same direction, which we know is lower as the Fed has raised rates. There's also a case for significant gains with far less downside risk. On bond math, the 30-year treasury would gain 13% over the next year if rates were to drop 1.5% of 1%, but bonds would lose less than 3% if interest rates rose by 1.5% of 1%. So the convexity is positive Rates go down a half, you're up 13%. Rates go up a half, you're only down 3%. If you believe that the probability is 50% either way, then being long bonds makes a lot of sense, a very high expected return in that scenario.

Keith Lanton: 17:13

Barons goes on to talk about that. Certainly a worry is the government spending what we just talked about, the rise in the deficit and Barons concludes that, although investors are very correct to be worried about government spending, they say at this time it's not a reason to avoid bonds. Investors that we just talked about, barons says, have finally awakened to the size of the national debt, which is approaching $34 trillion, up from $22 trillion just in 2019. So to rising yields mean investors shouldn't buy bonds? They say far from it.

Keith Lanton: 17:43

In this article, valuation, psychology and technical factors are all operating in concert in all in the same direction right now, despite concerns about the size of the debt. They say long-term bonds are attractive Before we weren't getting compensated for interest rate exposure. That has changed as we are now getting paid every year north of 5% to own most, most maturities in federal debt. For now, the impending debt crisis, like the limit, the limitations of the social security trust fund, they go on to say, is a slow-motion tech rec that will get worse, but they think, think that Washington will eventually address the situation and make some changes to fix the slow-motion train rec. They also address can the market absorb the higher amount of government debt, they say in the long term? They feel the answer is yes, that individuals are stepping in, pension funds are stepping in as interest rates have increased. So the increase in rates, the lower prices, drawing in buyers. There is demand at these higher yields and the geopolitical situation is making more investors more keen to participate in auctions and in purchasing treasuries. They go on to conclude that US debt is still safer than almost any other income, producing security on the planet perhaps the cleanest dirty shirt and that gives it important roles and portfolios, especially during market shocks. Which you really want to watch out for, they say, is if you saw the dollar start to decline. Well, that would indicate that folks outside the US are really starting to get concerned about our debt and our deficits, and in fact the dollar has been strong, so, at least at the moment, the concerns about the size of the deficits, they say, is not, in their opinion, a source of predominant concern and not a reason to avoid investing in US debt.

Keith Lanton: 19:33

Then Barron's had a big money poll, and the big money investors are split on their outlook for stocks, but almost all of them are fans of bonds, especially high quality bonds. On the equity side, they prefer value stocks. Two thirds of big money respondents expect the 10 year Treasury notes yield about four and a half percent a year from now, versus a current rate of about 4.9%. One of the participants said if we can get a Treasury yielding 5% or more for a decade, which is about where the 10 year is, that's pretty darn attractive. That's Jack DeGone, who said we haven't seen that opportunity in portfolios in a long time, and then he went on to say what we've already discussed is value in long term bonds as a hedge against broader market declines.

Keith Lanton: 20:22

What do these market pros have to say about the US equity market in terms of valuation, 48% say overvalued, 19% undervalued, 33% barely valued. Are your clients bullish, bearish or neutral about US stocks? Clients are 62% neutral, 26% bearish, 12% bullish. Which asset class will provide the highest return in the next 12 months? Pretty much split between stocks and bonds Over the next five years, though participants much more optimistic about equities 95% say stocks will outperform bonds over the next five years. When asked to describe their current asset allocation, these pros had about 68% in equities, 20% in bonds, 8% cash and 4% in other investments.

Keith Lanton: 21:11

When it comes to investing in bonds, barron's also talked about how you might want to think about investing in bonds, and one of the articles suggested that investing in bond index funds at this time may not be the best choice for your bond allocation. One reason is indexing bonds as problematic is because of the bond market sheer scale and number of outstanding issues, and the stock market is essentially one security per issue. There's one share of Microsoft. There's one share of Microsoft, one share of IBM, one share of IBM and that price of that security is observable at all times that the market is open. However, in the bond market there are millions of securities. Take one issuer Verizon has 328 different fixed income securities. Each one has a different interest rate, a different coupon, different call date On. These different individual securities require a lot more analysis in order to determine which may be the best Verizon security for a portfolio. Bottom line is that bond index funds perform superbly for widely traded securities that are liquid, like treasuries, but not nearly as well for illiquid securities in the corporate and municipal markets.

Keith Lanton: 22:25

Put the muni market in perspective. There are over 1.1 million individual bonds from over 50,000 different issuers. It's impossible to index all of these, so it makes sense that you look at buying a small batch of overlooked, attractively bonds and you could potentially beat the index with a portfolio manager. Speaking about buying individual securities or investing with a professional manager on an active management basis, if you go back two or three years when yields were very low, were you talking about the municipal bond yields of 2%, while paying a management fee of half or three quarters of 1% took up a big chunk of that income level and therefore the amount of benefit that the manager was providing being eaten away. Perhaps 25 to 35, 40% of the income benefit was being eaten by the management fee. Today, with rates significantly higher, those expense ratios are still the same. The amount of benefit that the manager can provide in this interest rate environment more than makes up for the expense ratio in many cases, as long as the manager is good. So active management, individual securities may make more sense than individual ETFs in the fixed income market for less liquid securities. We're not talking about treasuries, we're not talking about high quality corporates, but we're talking municipals and less liquid corporates and less liquid mortgage-backed securities.

Keith Lanton: 23:50

All right, so what's going on this morning? I'll be quick because we've got to turn it over to Brad and, I guess, his thoughts here, because we just emphasized how important to the overall market the bond market is. S&p futures right now are trading above fair value Just want to get the most recent update here and Dow futures now at amongst their best levels of the morning, up about 180 over fair value. Nasdaq is about 24 over fair value. S&p about 24 over fair value, nasdaq about 94 over fair value and we're attempting to bounce after the S&P 500-inted correction territory.

Keith Lanton: 24:25

After Friday's close, this week's calendar features another heavy batch of earnings, including Apple after Thursday's close, the FOMC decision on Wednesday, policy meetings from the Bank of Japan and Bank of England and of course we just talked about the treasuries quarterly refunding announcement. We also get the October ISM and we get the employment report on Friday. So lots of inputs here for the market to digest. On top of all that we've got the geopolitical situation going on Israeli forces entering the Gaza Strip, beginning the quote second stage of the war, quoting the Prime Minister Netanyahu who warned Israelis to expect a long and difficult war. Treasury yields are showing a little agitation ahead of these refunding estimates that we just talked about. Two-year note is up one basis point to 503. Ten-year up four basis points to a 489.

Keith Lanton: 25:15

Markets in Asia began the week on a mix note. Japan was down about 1%, china and India modestly higher. Major European indices up anywhere from a half to about 1%. Positive territory over there. Individual News this morning Iranian president says Israel had quote crossed the red lines which may force everyone to take action. End quote according to NBC News.

Keith Lanton: 25:40

New York Times reporting that Mike Pence has ended his campaign for president. Axios reporting in House Speaker Mike Johnson says his first priority is to reach a deal on government funding ahead of the November 17th Deadline. Mike Johnson also said he expects the House to pass Israel aid bill this week and saying that Ukraine aid will be removed from the bill. And the Wall Street journey journal reporting that insurance companies are concerned about President Biden's administration's mental health coverage Requirements, that it will be costly and problematic for insurance companies.

Keith Lanton: 26:13

In corporate news, mcdonald's morning is up about three percent, about seven points, as they beat on earnings and revenues. Stellantis, us Army is Chrysler reaching a deal with the United Auto Workers and that stock this morning is up about two percent. United Auto Workers now Entirely focused on General Motors after striking a deal with the launch this and forward and announcing some more strikes. The General Motors plants. Apple in the news. They are going to be having an event this week. They're expected to launch some new Mac computers. But a lot of attention on their earnings on Thursday, especially what they have to say about China, with the growing indications that iPhone 15 sales are falling behind in China as Huawei's new phones are making Market share gains, is what people are speculating. Cisco, csco, the Technology stock downgraded to underperform for market performer Raymond James, down about half of a percent.

Keith Lanton: 27:12

This morning, wednesday, bureau of Labor Statistics released the Joltz report, or job openings and labor turnover survey. This report the spook market. Last time it was announced when we saw nine point six million job openings in August, which was about a million higher than expected. So a lot of attention on Wednesday to see what that number looks like. Wednesday we get Federal Reserve Open Market Committee announcing its monetary policy decision. Wall Street unit nearly unanimous and expecting the rate to stay unchanged, a five and a quarter to five and a half percent. Traders of chip pricing in about a 20% chance of a hike at the mid-December meeting. Also mentioned on Wednesday Treasury is going to announce what the structure looks like on Treasury bill auctions taking place in the fourth quarter. Thursday we mentioned apples earning coming out. Thursday and Friday the jobs report Consensus estimate is for the economy to have added a hundred and seventy thousand five thousand jobs after an increase of three thirty six. Three hundred thirty six thousand, that is in September. Unemployment rate expected to remain unchanged at a historically low level of 3.8%.

Keith Lanton: 28:18

Just addressing the stock market last week down week about two and a half percent on the S&P 500. S&p did try to rally, just as it had many times over the past few months, but those bounces have invariably failed sentiment that seems to have been turning on the streets. Things are starting to show breakdowns. If you're an equity market participant, you are observing that good news is bad news. Once again, the US economy grew at 4.9% in the third quarter before inflation, which looks like a sparkling number. Unfortunately, it only reaffirms the Fed's resolve to keep interest rates higher in order to cool the economy and inflation.

Keith Lanton: 28:56

Also, we got positive earnings from companies like meta last week and, despite the the seemingly very good headline numbers and even the even numbers that look good when you, when you dove into them, just one warning, one comment that's cautionary in the case of Metta was able to trip the stock up and cause it to fall 3.7%, and that's somewhat of indicative of a market that is more cautious, not in its rally mode. Perhaps this is because we're still looking at barely elevated levels, historically based on current interest rates. So if you have a 10-year treasury that's yielding almost 5%, traditionally you're looking at a PE ratio in the markets somewhere in the low teens and right now, based on forward earnings estimates, we have a market with a PE ratio of about 17. So arguably, unless you believe that those 10-year yields are coming down, the stock market may have some significant headwinds to deal with, based on bond yields and valuations. I'm going to turn it over to Brad to give us some more thoughts and comments this morning. Good morning Brad.

Brad Harris: 30:04

Good morning, I hope everyone had a great weekend. Being a bond trader or investor for the last few months has felt like being a kid going to school and every day you know the first person you're going to see is the school bully who's going to beat you up or, in this case, take your money Slowly. There's been a little bit of bang on the drums that the bully's days may be coming to an end. As Keith discussed, this was the headline story in Barron's this week, and there may now be some very good opportunities being created. I've actually thought there have been opportunities for a while, but now there are more people joining that camp. There have been months of positive articles regarding bonds, and especially municipals, and publications such as the Times, as well as the Wall Street Journal, so at some point, the knife does stop falling. I do agree with the cautiously bullish theme. However, we do have two major headwinds that Keith had alluded to coming at us. One if the inflation numbers stay elevated and unemployment stays too low, the Fed is going to need to continue to raise rates, though, in my opinion, if they overdo it and throw us into recession, we may again wind up with a more severely inverted yield curve, where longer bonds may wind up actually holding value. The second concern, which was discussed earlier, is the double-edged sword of our government staying open. As long as we are open, we are printing a lot of money and that comes to market through bonds. The question is will the demand be there to digest all the supply? Believe me, this is a lesser problem than the government shutting down for the markets and us as Americans.

Brad Harris: 31:44

In municipals there are plethora of opportunities, not only for long, 5% or close to 5% bonds, but now even the three-tenure range. There are yields that have not been available since the COVID days. Without all the risk of the unknown of COVID, for those who have been buying Treasury bills for taxable accounts, the next four to six weeks would not be a bad time to start looking at some of these short-term-added municipals, depending on what the investor's time horizon is. Additionally, you can easily get 4% municipals in the 10-12-year range for those with a little bit more in that time horizon and, as I mentioned, for longer buyers, 5% is readily available as well. There are so many options how to invest here and I think communities, we should have this opportunity for a little while, especially because, with tax loss season and progress, the market will be very sloppy. Last, it is time to start considering tax loss harvesting again for the third year in a row and I look forward to discussing that option with everyone. I hope everyone has a great week and I'll hand it back to Keith. Thanks.

Alan Eppers: 32:54

Thank you, Brad. That's everything I've got. Thank you for listening to Mr Keith Lanton. This podcast is available on most platforms, including Apple Podcasts, Spotify and Pandora. For more information, please visit our website at

Sophie Cohen: 33:15

Opinions expressed herein are subject to change and not necessarily the opinion of the firm. Past performance is no guarantee of future results. The information presented herein is for informational purposes only and is not intended to provide personal investment advice. It is important that you consider your tolerance for risk and investment goals when making investment decisions. Investing in securities does involve risk and the potential of losing money. The material does not constitute research, investment advice or trade recommendations.