Wait, Aren't Bonds a Safe Haven? And What About the new Fed Chair? feat. Thomas Urano

In this episode of the Market Misbehavior podcast, Dave is joined by Thomas Urano, Co-CIO of SAGE Advisory. Recorded 4/14/26.

Thomas shares his fixed-income expertise to help us make sense of the bond market's wild ride in early 2026. We dig into how the conflict in the Middle East has shifted the driver of bond yields from macroeconomic data to oil and inflation, what a new Fed Chair means for the future of quantitative easing and rate cuts, and why the Core CPI is actually a better gauge for monetary policy than headline numbers. We also redefine the true role of bonds as a portfolio diversifier and explore where investors should look across the yield curve—from the 0-5 year maturity range to credit risk and mortgage securities—to find stability and yield today.

📈 Topics Covered
• How the Middle East conflict shifted the bond market's focus strictly to oil and inflation
• Why the market priced out 2026 rate cuts and how to think about the 3% neutral rate (R-star)
• The critical difference between Headline and Core CPI, and why the Fed focuses on the latter
• Why the unreliability of initial economic data prints requires a broader "mosaic" approach to analysis
• The impact of incoming Fed Chair Kevin Warsh and a potential shift toward a more traditionalist monetary policy
• Redefining bonds as a diversifier: relying on low return volatility rather than strict negative correlation to equities
• Where to allocate in fixed income right now: the 0-5 year maturity range, investment-grade credit risk, and mortgage bonds

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The content in this presentation should not be considered as a recommendation to buy or sell any security. All information is intended for educational purposes only and in no way should be considered as investment advice. 

Transcript

Intro teaser – The impact of a new Fed Chair
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Dave: A lot of newer investors have only known Jay Powell as being the head of the FOMC. Now we have a change with Kevin War to be, approved to very soon. What do you think are some of the impacts , we'll experience because of that change?

Or will it be less of an issue than maybe some fear? 

Thomas: you know, maybe a less of an issue. I think every fed chair that comes in, You have to pay attention to the fact that you have six Fed governors speaking and all right, well, that, that's not entirely unintentional. And the messaging is not entirely random, so I think you have to pay attention to the bigger picture there.

So a new fed chair will, uh, in my opinion, bring in a new regime and. That doesn't necessarily mean like the metrics of hey , they're gonna cut rates or not cut rates. It's more of, hey, what's the architecture with which warsh makes decisions and presents ideas to the committee?

is it something that's gonna be committee? I mean, one of the things that we've seen over the last year as a couple of descents. 

Have emerged from these F OMC meetings, which for listeners who aren't aware, dissents among the F OMC is, a rare, [00:01:00] rare event . For the most part, any movement by the Fed is a unanimous policy change.

Unanimous. Right. , 

Disclaimer: Welcome to the Market Misbehavior Podcast, hosted by Dave Keller. Dave talks to top market practitioners, money managers, technical analysts, investment strategists, and authors to help you navigate the markets and become a more mindful investor. The content of this podcast should not be considered as a recommendation or solicitation to buy or sell any security.

All information is intended for educational purposes only, and should not be relied upon for any investment decision. The host of this podcast as well as any guests may hold positions in securities discussed. 


Welcome and guest introduction: Thomas Urano at SAGE Advisory
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Dave: Hey there everyone. Dave Keller here with Market Misbehavior and welcome to our latest episode of the Market Misbehavior Podcast. Today we're talking fixed income with Thomas Urano. Thomas is the co CIO. Of [00:02:00] SAGE Advisory based in Austin, Texas. , A lot of fun to talk fixed income markets. So many of you I know are focused primarily on equities, ETFs, indexes, but the fixed income market is huge.

The fixed income market is important, and the fixed income market is essential to understanding what's happening in the markets in April of 2026, we're gonna talk about the conflict in the Middle East and the ripple effects that that has created. We'll talk about the short term versus long term.

Implications for inflation and the Fed, and we'll talk about how to think about that fixed income portion of our portfolios where we might want to be, uh, thinking about allocations here going forward as the year progresses. Please enjoy this interview with Thomas Urano of Sage Advisory.

Super excited to be catching up today with Thomas Urano. Thomas is a co CIO of Sage Advisory, I think in the Austin, Texas area. Right. 

Thomas: That's correct. 

Dave: Awesome. , I actually have done some work with, the Aggies at Texas a and m. I hope we can still be friends [00:03:00] after this conversation because I

know you're in, uh, you're in Austin.

Thomas: I won't hold that against you 

Dave: No, I've done some work with the business school there lecturing to some of the students, but listen, it's awesome to catch up with you. I've heard really good things, Thomas, about you and your work, and, have reviewed some of your interviews.




Bond market behavior amid Middle East conflict
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Dave: I'm super excited to be sharing some of your expertise with our viewers today. , If we could get started here, talk, talk to me about this, Thomas. We're, you know, we're obviously in the midst of a pretty significant geopolitical event, conflict in the Middle East. Most markets have had quite a bit of volatility in the bond markets, I would say no different.

We've seen rates going up and down. We've seen bonds going up and down. how would you describe sort of the general behavior of the bond markets over the last six to eight weeks?

Thomas: so that's a great question. And I think as the Iran conflict happened, there was a handoff. Of the reigns of what was driving the market pre and post. what we started with coming into this year was a scenario where, treasury yields were rallying the market. Was [00:04:00] optimistic about a new Fed chair.

A couple rate cuts coming on board. Growth may be slowing, disinflationary pressures coming along. You know, coming off the risk of a government shutdown, very much towards a, a slowing macroeconomic backdrop, , that would have, I would say, left the door wide open for a new Fed chair to come in and, 

Pitch the idea of further rate cuts and that had the bond market excited about, maybe lower yields a little bit. , And so I think, you know, as we started January and February, uh, the bond market was doing fine, and then Iran happened and suddenly this wasn't about macroeconomic variables anymore. This was about one thing, one thing only oil.

That's it. Oil went up to, you know, a hundred dollars a barrel suddenly. Everything is about inflation now, commodity and energy driven inflation pressures, and how do we deal, how do we deal with that? Right? And I would say that the thinking on the market change in terms of a new fed share coming in and can we cut rates or not?

And, inflation expectations [00:05:00] over the next 12 to 24 months skyrocketed on the heels of this tremendous spike in oil. , And that's really been the driver 


Are markets returning to normal after the ceasefire?
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Thomas: since.

Dave: that's fantastic. you hit on a number of things that I'd love to dig into a little more, , deeply, Thomas, my first question would be this. I think a lot of investors, certainly in the equity space, you've gotten the sense that the market had a certain look and feel situation.

Iran pops up huge change, huge, you know, drop in risk assets. Ceasefire announced huge recovery and now the equity markets almost seem to be pricing in kind of a back to normal. We're back to the AI optimism. Everything's fine. Do you see signs in the bond market? Is there, is that a reasonable expectation that this is like a six week kind of blip, which was just an adjustment and are back to normal?

Or is there meaningful change that comes out of this that we need to be thinking about and preparing for in the months to come?

Thomas: So I think in some respects there it's a little bit back to normal. And I would say that's with regard to maybe credit risk pricing, we've seen, uh, you know, some weakness [00:06:00] just like equity markets sold off, credit risk pricing sold off, and then we've seen a recovery back. So that's, that part of it, , I think is kind of a back to normal, so to speak.

The expectation for Fed policy though hasn't changed, right? We went again, as I mentioned, we came into this year expecting two rate cuts. By and large the market was prepared for a policy rate of approaching 3%. That's gone, that's all gone. Even at some point in the last two weeks, the market had priced itself for some rate hikes.

By the end of this year, which to me seemed a bit absurd. But, that's been the big difference. We have not reverted back to expected rate cuts through the balance of this year. So we're just kind of at the stasis now. We're saying, Hey, oil's up, inflation expectations are high. It's gonna be very difficult for the fed chair.

New fed share coming in to pitch the idea and build a consensus around a couple rate hikes in 2026. So let's just take that off the table. And I think that's the only difference here. We're at a point now where, yields have risen a bit on the [00:07:00] very front end of the curve and it's means we're not expecting rate cuts, but that's just means more of a, I think, a stable, sideways trade in, yields, which isn't a bad 


Key data for the Fed: Inflation and employment expectations
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Thomas: thing.

Dave: it's very, very interesting, and I, and I saw that same, data, uh, showing that rate hikes now may being priced in a little bit, and I, it, it seems like a huge head scratcher in my opinion as we've seen that, that shift. Back to that. the Fed has always talked about being very data dependent, which I think is, is, is certainly appropriate. What's some of the data that we would be looking at to try to get a sense, I mean, now that we've swung from. Two rate cuts are an obvious outcome in 2026 to now maybe no rate cuts are the obvious outcome. What's some of the evidence you'd be looking at between now and these next couple meetings to get a sense of what that trajectory might look like? 

Thomas: so it's inflation, the bottom line, that's gonna be the number one driver. , With inflation running hot right now. Uh, you know that that headline number was extraordinary. , The nice thing off, off of that though was that core inflation coming off that last CPI print was. More reasonable, more stable.

[00:08:00] It's not decelerating, but it's, it's more stable than headline. , the fed is going to need to see a, material reversal in inflation expectations, you know, , energy driven or not. A reversal of that, kind of inflation expectation over the next 12 to 24 months. We need to see a material reversal in that before the Fed would be willing to entertain the idea of rate cuts coming around the corner.

, So I think that's one prerequisite. The other one is going to be, , growth. And employment. I, I mentioned these because they exactly coincide with the fed's dual mandate of full employment and stable inflation, stable pricing. the challenge is, well, how do you define full employment at this, juncture in the economic backdrop?

because the economy's been printing, you know, on average sub hundred k job prints month by month. I know the last one was big, but. The prior ones were, were negative. And when you average it all out, you're still somewhere around 50, 60 KA month in job growth. which in any other period would've had [00:09:00] people panicked and would've, would've indicated you're gonna have this massive rise in unemployment and the Fed would've been rushing to the, the rate cut button.

, But that's just not the picture that we're seeing in the labor market and in the unemployment rate. With immigration set the way it is. Right. And I think that's the big wild card is that with immigration policy, the new immigration policy, the labor force isn't growing nearly as much as it had over the prior four years.

And so we can sustain low levels of job gains for the time being, , without seeing a material increase in unemployment. So if unemployment stays pretty stable, inflation stays elevated, it's gonna be very, very difficult to , push those cuts through. lemme just caveat that though. I don't think that means they're gonna hike rates by any 


Rate cut trajectory and the neutral rate (R-star)
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Thomas: stretch.

Dave: What is your sense of what the, rate cut trajectory looks like going forward? Do you have a sense of how many you think makes sense? Regardless of what the market's pricing in here? Hmm.

Thomas: Yeah. So let's just presume that inflation settles [00:10:00] down and, and maybe, you know, unemployment is, is still a little bit of a concern or takes up. Then the question is, if we're gonna cut rates to where, to what degree should we cut rates? Right? And this brings on the age old question of our star, the neutral rate.

the proper policy setting for interest rates? . There's tons of academic research that's been printed on this, but I think if you wanted to think of a back of the envelope way to think about it, you should think about nominal GDP growth, back down inflation gets you to a real GDP growth number, and then we should think about a real policy setting that's a hundred, 150 basis points below that number, 

right? So that can put you somewhere in the neighborhood of a three ish percent policy rate is a fair, , expectation. you know, debates about what the forward inflation rate that you should use to discount growth. That could be, you know, interjected into that equation. But again, I think when you look at just the big picture again, that [00:11:00] back of the envelope math, you can arrive somewhere around a 3% policy rate 


Inflation 101: Understanding Core vs. Headline CPI
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Thomas: today.

Dave: if you wouldn't mind indulging me with a, with a. Inflation 1 0 1 kind of question. With the straight of four moves being, you know, closed, open, closed, fluctuating, I would say, you know, the, the impacts that we felt from the conflict in the Middle East. Have been kind of twofold

one with energy prices, right? Crude oil , and natural gas and everything, , shooting up, but also food, right? Fertilizer is one of , the products that it seemed like was gonna get, uh, choked out there. And, and so core CPI is reported and it excludes those two things. , Food and energy. What's the reasoning why we have a core CPI that excludes those things. And is there a message you're seeing? From the core CPI, that does not include those, that gives you optimism or not about inflationary pressures going forward.

Thomas: Great question about why does the Fed focus on core and not headline? , Because headline is, is, wildly volatile. And these events that are outside the control of the Fed, like. What's happening in the Middle East and energy prices, [00:12:00] you know, the, the Fed could say, Hey, we're, we have high inflation right now at the headline level, we should hike rates by 200 basis points.

That's not gonna fix it. That actually does nothing to impact food and energy pricing. Right? As a central banker and you want to think about policy settings, you need to think about, what can my policy impact? Um, can it, and it can impact.

Generally, you know, the drivers of the US economy, , and the US economy is largely services based, so looking at that and looking at core, services in particular, that's a big driver. , Why is core CPIA little more well behaved at the moment? A big piece of that core services is housing.

Housing inflation, right? Owner's equivalent rent and housing. Inflation and housing inflation has been improving. It's been subdued. It's come down quite a bit from its peak several years ago. and that, you know, is a function of aid. There's some weakness in the housing market. People may have noticed or not.

[00:13:00] but housing, with housing pricing kind of flattish , and, shelter inflation being more stable, then it sets the backdrop for , that core inflation number to be more stable as well. And I think that's one of the things the Fed is focused on too. So housing is, uh, is a big component over there, but the stability of that, of that is one of the big drivers we're seeing in core inflation right 


The impact of economic data revisions on fixed income
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Thomas: now.

Dave: Oh, that's awesome. No, thank, thanks for that. That's a question, uh, a lot of people, shared with me over time. I appreciate it. It's a great answer. talk to me about this, right, with the inflation day that you mentioned last week. I mean, one of the, I would say, , areas that, , people I've talked to have been skeptical of is the fact that we've had a lot of, kind of restatements or revisions of earlier economic data. How much do those revisions play into how you are thinking about things? A lot of, news flow happens about the headline that's announced. Something that's edited from six months ago also impacts things. Has that, sort of revisions in, in previous data impacted the fixed income markets or impacted your thinking in [00:14:00] any meaningful way?

Or has that been a non-issue?

Thomas: No, I think, uh, well at least for me, for us, we've thought about that. You know, I've been working in fixed income for, well over 25 years. You know, early in my career you took a lot of these economic releases as gospel and uh, and I think that's changed over the last decade. And the number of re revisions that have occurred has, I think, eroded just kind of the initial.

Confidence level and trust you have in these numbers, right? So as a practitioner, what do you do? I think you start having to consume a broader spectrum of information to support a thesis in a certain variable, like let's say labor. Okay, well, we don't live and die by non-farm payroll.

You know, we're interested in, in. Data, data. We're interested in the a DP data now, like we're looking at a, a mosaic of information because the revisions and the volatility and shutdown suddenly eliminate some data for months. Maybe it's a wake up call. Maybe it's to say, Hey, let's look at a broader, a broader spectrum of information rather [00:15:00] than just relying on these government stats that then are subject to 


Impact of the new Fed Chair: Kevin Warsh's policy approach
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Thomas: revision.

Dave: And to your point, right, I think that's a trap a lot of investors, not just with economic data, but with generally we, we, we tend to kind of put the blinders on and focus on one piece of evidence, one data source. If there's one thing I've learned over my career, it's having diverse inputs and diverse opinions never hurts, and just challenging your own thesis, challenging your own data, rarely a bad thing in my experience. you've mentioned the Fed and we've, talked about potential rate cuts. Let's talk, uh, for a minute if we could about, a change in the Fed chair. This is something we've not seen in a while. A lot of newer investors have only known Jay Powell as being the head of the FOMC. Now we have a change with Kevin War to be, , approved to very soon. What does a change in the fed chair mean in terms of your expectations for potential rate cuts? How do you think about that? And how it could change the conversation, change the presentation of the data. What do you think are some of the impacts , we'll experience because of that change?

Or will it be less of an issue than maybe some [00:16:00] fear?

Thomas: you know, maybe a less of an issue. I think every fed chair that comes in, they kind of bring their own regime to the table in terms of this is how they think about things. This is the way I'd like to focus on policy, the way I'd like to communicate policy. Maybe this is the way I'd like to interact with media in terms of.

what happens around fed meetings, you know, like you have to pay attention to the fact that you have six Fed governors speaking and all right, well, that, that's not entirely unintentional. , And the messaging is not entirely random, so I think you have to pay attention to to, to the bigger picture there.

So a new fed chair will, uh, in my opinion, bring in a new regime and. That doesn't necessarily mean like the metrics of hey rate, they're gonna cut rates or not cut rates. It's more of, hey, what's the architecture with which warsh makes decisions and presents ideas to the committee?

is it something that's gonna be committee? I mean, one of the things that we've seen over the last year as a couple of descents. 

Have emerged from these F OMC meetings, [00:17:00] which for listeners who aren't aware, dissents among the F OMC is, is a rare, rare event . For the most part, any movement by the Fed is a unanimous policy change.

Unanimous. Right. , So I think, you know, bringing a new Fed chair in, he was to make the case for cuts that some governors may not be comfortable with , and they have been vocal about not being comfortable with some cuts, Maybe there's a scenario here where, where it's not quite uni unanimous anymore, and, and maybe you have to do a better job of building consensus among the governors on the board.

So that'll be interesting. , Warsh is bringing to the table, I think, more of a traditionalist approach to policy. , He's written about the, the new policy tools. Based on, you know, my understanding of his history, he is not, , an enthusiastic fan of quantitative easing. 

I don't think QE can just go away and we definitely cannot just run off the balance sheet.

Right. We just saw the fed. Kinda changed course on, on balance sheet [00:18:00] runoff and they, they enacted these reserve management purchases, but basically grew the balance sheet by 40 billion a month for the last several months. , Which is not qe, but uh, expanding the balance sheet. So I think just. The modern pipes and plumbings of the banking system have been changed, which means you cannot just eliminate qe.

It's gonna be a necessary tool. But do you use it as, a mechanism to adjust the pipes and plumbings, or do you use QE as a mechanism to stimulate growth? And I would suggest, based on my understanding of wars, it's more of a pipes and plumbing adjustment guy, rather than, I'm gonna use QE and scale to stimulate growth.

So like there's a change right. , and we'll know more when he comes in and, and maybe speaks a bit more if he, you know, these hearings progress and he go, he gets to espouse his views on policy and how it should unfold. Maybe we'll learn a little more, but the bottom line is, yeah, I think you have to pay attention to the new fed chair.

You have to understand maybe , what nuances. His regime will bring to the table in terms of , interpreting [00:19:00] how, , variables are impacting policy, what policy effects they may take, and, you know, what tools is he gonna use. So it, it'll be 


Are bonds still a safe haven? Correlation and volatility
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Thomas: interesting.

Dave: No, really good, really good points in there. , Toms I think, and particularly in terms of the messaging, right, and the communication, I think that's something that, , if we do see a change in that, interesting to see if we, if we see, continue, continue to see dissent highlighted and the different ways that governors are, uh, communicating for sure. Alright. Are you emotionally prepared for another kind of rookie question here?

Thomas: Oh yeah.

Dave: Awesome. So tell me this, right? Bonds are a safe haven, right? That that's what, that's what I was taught, and that's what a number of people would, would, would think as well.

So I would say it's been confusing as an investor looking at the bond markets to see how it's, , performed over the last kind of six weeks related to events in, in Iran. you know, sort of the, the hostilities, uh, sort of emerge. End of February and through March, we see bonds selling off. So there's no real flight to safety there. Then all of a sudden the ceasefire [00:20:00] happens, bonds start to rally. So are bonds a safe haven or not? , And how would you, how can you explain for people that thought the complete inverse would happen?

How do we explain what actually has happened in the bond markets related to, the events in the last six weeks?

Thomas: So this is a great question, right? And I think this is a scenario where expectations may be a little convoluted in terms of what, what are you expecting out of an asset class, right? So let's talk about that. , Did bonds diversify your equity risk? Well, what does that mean? When people ask that question, I think what that means is, generally speaking, people think that bonds should go up when my equities go down, IE negative correlation, very traditional train of thought in terms of thinking about stocks and bonds.

Diversification, bonds go up, stocks go down. Let's take the other side of that though. You only invest in stocks because you think over the long term that stocks will go up, 

right? Does that mean that you're investing in bonds? Because over the long run you think your bonds are going down because they're negatively correlated.

No, of course not. [00:21:00] Right? You're, you don't want that. You don't want that. so what we're talking about here is this flight to quality trade. Which typically you see, and I, I've seen in the past many, many times, flight to quality trade where maybe something specific, maybe some kind of, corporate issue or idiosyncratic risk is happening in the world.

That's, that may be having a larger impact on credit risk, um, that doesn't impact inflation or fiscal policy or so forth. That's a scenario where bonds , can go up, stocks go down, right? That's a flight to quality trade. But absent that, like what we just saw was an episode of macro risk, right? Macro risk, meaning it's something that impacts markets broadly, all facets of the capital markets.

When fear of commodity prices spike and fear of inflation accelerates rapidly. That's not really great for anything. It's really not. It's not. So, bonds suffered a little bit. They suffered a little bit. Equity suffered a little bit more. You might expect it. Equity volatility is much higher than bond [00:22:00] volatility.

, Gold suffered gold, had a tremendous drawdown right? Dollar weakness. So I. In episodes where you have the macro variable risk that is impacting all facets of the capital market, then yeah, you can't say, Hey, bonds should go up when stocks go down. And then when stocks start going up again, bonds should start going up again.

, That's asking too much of an asset class. , I think the way to think about it is what is the return volatility of bonds in relation to the return volatility of equities? Return volatility in bonds is much lower, right? So what do you get in fixed income over time? You get, a mid single digit return stream with very little variability to it and inequities.

You get a higher expected return stream with more volatility to it. You put those two together, there's your diversifier.

Dave: Hmm.

Thomas: income with low variability equities with high variability, that is your diversifier, right? So judging fixed income as a diversifier [00:23:00] against equities over a six week window is just a tough ask.

But if you think about it over a market cycle, over a long-term investment horizon, which is what you should be doing in an asset allocation decision. Then it makes a lot more sense if you consider it in terms of low variability return, low volatility and high volatility asset classes working together to give you an overall portfolio of all that's more 


Fixed income exposure: Where to focus on the yield curve
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Thomas: reasonable.

Dave: really well said. And the data a hundred percent sort of supports that, right? The low volatility kind of general uptrend in the bond markets versus a super volatile, with significant drawdowns. I really like that comparison, , Tom, and , thanks for talking through that. So, I mean, how would you, uh, suggest investors I know investors, a lot of times spend, a lot of time thinking about the equity portion. Then the bond portion is kind of this other thing, whether it's a 60 40 kind of balanced portfolio or something different. Bonds are sort of this murky, unknown kind of thing. , For those that just think of the bond markets as the 10 year treasury bond. [00:24:00] How should we be thinking about exposure in the fixed income space? How do you think about things like duration risk in this sort of environment, and where should we be focusing around the yield curve right about now?

Thomas: Yeah, so that's a great question. People generally do think of bonds as just, what's the 10 year yield? Right? But to be honest with you, fixed income as an asset class has a cornucopia of risk exposures. Ranging from maturities. Do you want to be 1, 2, 3 year maturities? Do you want five to 10 year maturities?

Do you want 30 year maturities in your portfolio? Right? All will come with wildly different risk profiles in them. Do you want treasury exposure in your portfolio? Would you like credit risk? If you would like credit risk, which type of credit risk would you like? High quality investment grade credit risk.

Would you like high yield in credit risk in your portfolio? What else is there? Hey, would you like mortgage and securitized risk? if you wanted to buy esoteric securities in your bond portfolio? They're structuring risk. Bonds come in very different forms and fashions, right? So you can get paid risk [00:25:00] premiums for taking structural risk in different security types.

Um, all bonds have different levels of liquidity. You can get paid a premium for taking liquidity risk or giving liquidity risk, right? So the long story short is it's much more complex than people give credit. Four. , Which makes my job more difficult as a bond manager 'cause I'm trying to weigh all of these different risk profiles, mold them into a portfolio, and then deliver a portfolio structure and a return stream that kind of aligns with this, you know, homogenous vision of, of fixed income.

So, I don't have a specific answer for you, but I'll touch on some of the things here, but I just wanted to point out that it is a complex asset class with a lot of risks that, that are difficult to understand and, and difficult to measure. But that being said, there are some things that you can think about.

Right? , Let me just mention the aggregate bond index. It's kind of like the s and p 500 of the bond market. It's the most commonly used index in fixed income space. That's an index that encompasses the [00:26:00] entire spectrum of investment grade. Not high yield, but investment grade bonds. It has one year bonds, it has 30 year bonds and everything in between.

It has treasuries, it has credit, it has mortgages, it has everything you could possibly invest in. So as an all-encompassing, proxy for the bond market. That's a good place to start. Right. , From there, if you said, where's a good place to invest in fixed income for the next two to three years, .

Well, our view is that we'll get through this , Iran situation. Oil calms down, but maybe doesn't go back to 60, but maybe. high seventies, low eighties, and ultimately maybe inflation kind of calms down. And if the economy slows and a new fed share comes in over the next, you know, 24 months, he's able to enact some cuts and find a 3% policy rate.

What's that good for? That's good for 2, 3, 4, 5 year maturity type fixed income assets, um, because those yields have taken it all away, so they'll reprice that back into the picture. Those yields will come down a little bit. So you'll get your income [00:27:00] today. You'll get a little bit of price appreciation on that exposure.

If the market reverts to the expectation of, of wars bringing, bringing the policy rate to 3% maybe two years from now. So there's a little bit of upside there. And I think when you look at risk reward from a maturity distribution, that's a real reasonable place to be. , Within that, what should you buy?

Should you buy treasuries? Should you buy mortgage securities? Should you buy structured products? Should you buy corporate bonds? , I think a little bit of blend of both. , Credit risk isn't the cheapest on the planet at the moment, , but it still pays you, and the backdrop looks pretty favorable, , for credit fundamentals, meaning.

We're going through earning season right now, and results are generally pretty positive thus far. , So with that backdrop, I think credit risk, , while not cheap, will be well supported from fundamental backdrop. the mortgage market is interesting. A lot of people still think of it as the 2008 crisis lens, but it's, uh, changed dramatically from then.

And in today's backdrop. It's interesting 'cause, you know, you could think about it as. Where's the mortgage rate today? I'd say, you know, six and a quarter, [00:28:00] six and a half. , If people are thinking that the mortgage rate. For, you know, buying a, a house that will ultimately come down to maybe six or five and three quarters at some point, that'll be good for mortgage bonds.

That'll be good. 

Right? So there's a place, a rationale to have some of that type of exposure in a bond portfolio too. So long story short, I think focus on the front end, the curve. Maybe, you know, with an average maturity of your portfolio of zero to five years, somewhere in there.

Get a nice diversified basket. Take some credit risk, take some structured product risk in that mortgage space. Earn a decent yield. You're gonna come up with probably a, a mid four, maybe a touch of 5% yield in a low volatility asset class. That's a great thing. That's a, that's, that's a great return stream with low volatility to 


Post-interview recap: Takeaways on inflation and rate cuts
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Thomas: it.

Dave: Thomas, this was awesome. Right at the end there, I think you touched on what I hope our next conversation we'll dig into. 'cause I'd love to ask you additional questions on all of that. But for now, I'll say thank you so much for coming on the show. Thanks for sharing some expertise and some market wisdom and , thanks for sharing, uh, some time with us.

Thomas: My pleasure. I appreciate it. Thanks, Dave. 

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Dave: [00:29:00] I really enjoyed, talking with Thomas and I, I prepped him ahead of time, said, look, I'm gonna put a couple rookie questions in there and help you don't mind. And he was super, uh, fine with it and I really appreciate it. It's a great, great opportunity to ask someone like him a mix of questions about sort of current market dynamics, uh, particularly given the events, uh, that have happened so far.

Year to date, I feel like we've had. Years worth of, of, of news headlines and just, uh, you know, three and a half months in 2026. But to combine that with some of the more thoughtful, kinda longer term educational content, just how to think about a fixed income allocation, how to think about inflation data and so forth.

So, a couple comments here. I hope you, you picked up on this is a, I I often get questions about inflation and just. You know, whether inflation is a huge deal or not. I think his, uh, answer about, uh, CPI, kind of headline CPI and core CPI, why Food and Energy are Removed because they're super volatile and, [00:30:00] and and driven by so many other things versus Core CPI, which is really.

Uh, more helpful for understanding what the Fed is trying to do, right? And, and, and some of the levers they can pull and how that can impact, uh, sort of the services part of our economy, which is obviously a, uh, as, as Thomas, uh, I think correctly said was a, was a huge part of it. Thought that was really, really helpful.

Um, great to check in on some of those macro. Drivers, right. Some of the economic data, and particularly I enjoyed asking him about some of the revisions to economic data. And he, I think, clarified and, and sort of acknowledged a feeling that I've gotten right when I was starting in the industry around 2000 and was just learning about economic data and what it meant because I didn't really know a lot going into it.

you know, I was toss over economic data. Like that's, that's the stuff, right? That is, that is factual. That is. Reality. And so that helps you understand what's actually happening in the economy. And I think now as you're looking at economic data, it's sort of now an initial estimate, right?

It's more about [00:31:00] the initial number comes out, but then the official number or sort of the revised number gives you the more accurate reading, and there's now more of a lag. Between what's actually happening in e in the economy and the economic conditions as they're reported by these, uh, indicators that come later.

So that was helpful to hear him as a, uh, as an experienced market practitioner in the bond space. Uh, sort of address that, uh, evolution. Really appreciate his comments about the Fed, uh, in terms of, uh, rate cuts that had been priced in and now appear to be off the table. Potential impact of the new Fed chair and, uh, really had not understood as much about.

How that could impact what, what sort of changes we might be, uh, we should be thinking, uh, about. And I think it, particularly the comments about communication and about messaging from the Fed could certainly evolve. And I think that's something that, uh, all of us as investors will have to, uh, to think about, especially appreciated is comments about kind of the balance portfolio, how to think about stocks versus bonds.

We talked about. [00:32:00] That relationship between stocks and bonds. Most people think of it as having an inverse relationship because stocks are kind of a risk asset and bonds are a safe haven. But I think to his point, what we're seeing certainly in 2026 is stocks and bonds generally moving together. It's more about the difference in volatility, the difference in the structure of that market and how to think about it versus an inverse relationship, which to be honest with you, really isn't backed up by a long term.

View of the data really appreciated. Uh, Thomas Ano joining us, uh, here on the show from Sage Advisory. And thanks again to Thomas for, uh, sharing some time with us. I would love to circle back with him 'cause at the end we talked a lot about sort of allocations in the bond space and, and we hit on, I mean, he just briefly touched on a number of different areas of the fixed income market.

Uh, and uh, and I'd love to dig into that a little bit further. So hopefully we can get him back on later this year and talk in a little more, more detail about. That bond allocation. 'cause I know that's something that many of us, uh, have, uh, have struggled with at times. Thanks again to Thomas for joining us here [00:33:00] on the 


Outro and Market Misbehavior Premium Membership
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Dave: show.

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That'll do it for today. Thanks so much for joining me here on the [00:34:00] Market Misbehavior Podcast. My name's Dave Keller with Market Misbehavior, reminding you it's always a good time to own good charts. Take care folks.

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