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Anfield Fixed Income Update: February 2021




Volatility surrounding the US Treasury (UST) curve picked up significantly during the month of February, bringing both the belly and long end of the curve to new recent highs. As of February 24th, the 10-Year was up 27 basis points month-to-date, closing at 1.38%. The 30-Year broke through its 2% barrier, ending February 24th at 2.24%. Our teams view for 2021 has been for the 10YR to reach 1.25% and then continue to drift upwards perhaps has high as the 1.40’s this year.


Where is this increase coming from? Though there has not been a clear singular catalyst for the recent movements, the rising rates are widely expected to be from rising expectations for strong growth during 2021 coupled with the risk of stronger than expected inflation. Declining COVID-19 cases, increasing injection rates and vaccination distribution, and the continued push by the Biden Administration for an additional stimulus packaged currently priced at $1.9 trillion are all tailwinds for the increasing growth and inflation expectations.


Is inflation accelerating and is it a big deal? While accelerating inflation has not been observed in the widely watched CPI or PCE metrics, several other datapoints indicate some price pressure is emerging including energy and other commodity prices, manufacturing input prices and indicators of logistics bottlenecks. While these pressures could prove to be temporary and ultimately not leak through to consumer prices, it is likely that they will keep inflationary fears elevated in the short-term. Currently, TIPS inflation break-evens reflect these elevated concerns, sitting above their pre-pandemic highs with the 10-Year breakeven at 2.21% (highest since 2014).


Source: CreditSights & yCharts


CURRENT FIXED INCOME POSITIONING


Sources: Morningstar, Bloomberg, Manager as of January 31, 2021



Universal Fixed Income Strategies: Benchmark agnostic and line-item bond security portfolios looking to highlight our best ideas in bond space.


Dynamic Bond strategy: Benchmark aware to the Bloomberg Barclay’s Aggregate Index and is a top-down macro-focused strategy.


FORECASTS


“Anfield Affection Gauges”: What fixed income sectors & exposures do we like, and what do we dislike?

Universal Strategies Long Duration Gov’t Bonds High Yield Mortgages Structured Products Higher /CLO's Qlty Credit




Government Bonds Mortgages Emerging Market Debt High Yield Higher Quality Credit




Disclosures


Current Fixed Income Positioning Definitions:

  • Duration represents the current value for each of the funds and indices noted

  • Curve represents where each of the funds and indices are positioned on the yield curve

  • Government represents the percentage allocated to Government bonds within the funds and indices

  • Credit represents the percentage allocated to Investment Grade and High Yield Credit within the funds and indices

  • MBS represents the percentage allocated to Mortgage-Backed Securities within the funds and indices

  • Yield (YTM) represents the Yield to Maturity of the funds and indices


Anfield Capital Management, LLC is a registered investment adviser with the SEC. This report is for informational purposes only and does not constitute advice, an offer to sell, or a solicitation of an offer to buy any securities and may not be relied upon in connection with any offer or sale of securities. The contents of this report should not be relied upon in making investment decisions. The information and statistical data contained herein have been obtained from sources that we believe to be reliable but in no way are warranted by us as to accuracy or completeness. The accompanying performance statistics are based upon historical performance and are not indicative of future performance. The types of investments discussed do not represent all the securities purchased, sold, or recommended for clients. You should not assume that investments in the securities or models identified and discussed were or will be profitable. Results of the models do not reflect the performance result of any one client. Not all clients have experienced this specific return level. Actual client returns may differ materially from the performance of the models due to actual fees incurred by clients, timing of cash flows, or client restrictions (e.g., restrictions on specific securities, industries, or types of securities). Clients who invested in the models after our initial trade date for any security may have experienced materially different performance and may have lost money.


While many of the thoughts expressed in this report are stated in a factual manner, the discussion reflects only Anfield Capital’s beliefs about the financial markets in which it invests portfolio assets following the models. The descriptions herein, are in summary form, are incomplete and do not include all the information necessary to evaluate an investment in any model. The models described represents current intentions. However, Anfield Capital may pursue any objectives, employ any techniques, or purchase any type of financial investment that it considers appropriate for the models and in the best interests of its clients.


Any prior investment results or returns are presented for illustrative purposes only and are not indicative of future returns. An investment in the models presented herein involves a high degree of risk and could result in the loss of your entire investment. Investments with Anfield are subject to significant risks, which include, but are not limited to, the risk of loss of principal, lack of diversification, volatility, and market disruptions. Prospective investors are referred to our Form ADV 2A for a more detailed discussion of risk factors, which can be (a) found on the SEC's Investment Adviser Public Disclosure website at: http://adviserinfo.sec.gov, or (b) provided upon request. You should not construe the contents of this report as legal, tax, investment, or other advice. No representation, warranty or undertaking, express or implied, is given as to the accuracy or completeness of the information or opinions contained herein by Anfield Capital, its employees and no liability is accepted by such persons for the accuracy of completeness of any such information or opinions. Registration as an investment adviser does not imply a certain level of skill or training and no inference to the contrary should be made.

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