Search

Anfield Fixed Income Update: March 2021


In the US Federal Reserve’s most recent Federal Open Market Committee (FOMC) address on March 17th, Chairman Jerome Powell maintained a message of consistency—or what Morgan Stanley economists called a “triple-down” on dovish guidance— on the path forward for policy and the Fed’s reaction to the recent rise in US Treasury yields. The highly watched dot plot showed the 2023 median dot unchanged at 0%, a signal the Fed fully intends to follow through on its Average Inflation Targeting (AIT) and maximum employment reaction function.


Chair Powell went on to highlight the Fed’s forward-looking expectations, which include ending the year with strong economic growth and equally strong inflation as measured through the core PCE deflator. Specifically, the Fed is projecting a 2.2% Q4 2021 YoY rate for this metric, which is currently above the 1.9% Bloomberg consensus rate. This represents a sharp increase from the Fed’s previous December projection in which they forecasted ending 2021 with a core PCE deflator growth rate of 1.8%. In the longer run, the Fed also upgraded its projection on inflation with a core PCE deflator growth rate of 2.1% for 2023, an increase of 0.1% from their December projection.


In terms of possible future actions that could be taken by the Fed, while we are observant on possible rate increases and the start of tapering, we do not anticipate any major actions until strong economic conditions are realized. We also believe that any movement on the Fed’s part in relation to inflation would be from a sustained and persistent environment of 2%+ (as opposed to hitting the number followed by Fed action). In the press conference, Powell reaffirmed the intention to provide significant advance notice on a taper start date, which many believe to be the Fed’s next move in a gradual tightening sequence. While the team believes there is a minimal chance of rates going lower from here to year-end, we do see the potential for further steepening and accordingly are pushing our year-end interest rate outlook to a lower bound range on the 10-year of 1.50-1.75%, with the potential to hit 2.00% by year-end.


Overall, our fixed income strategies have been positioned for the rising rate environment and have benefited over the past couple of months from these sharp moves upward. Our Universal strategies have historically been in low(er) duration postures while our Dynamic strategy saw a reduction in long duration holdings at the beginning of the year. We would anticipate that the strategies would continue to benefit should the current conditions persist.

Sources: CreditSights, Morgan Stanley


CURRENT FIXED INCOME POSITIONING


Sources: Morningstar, Bloomberg, Manager as of February 28, 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 ETF of ETFs.


FORECASTS


"Anfield Affection Gauges:"

What fixed income sectors & exposures do we like, and what do we dislike?

Long Duration Gov't Bonds LQC Mortgages Structured Products/CLO's HQC



Non-US FI LQC Government Bonds Mortgages HQC


LQC = Lower Quality Credit HQC = 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.


37 views0 comments

Recent Posts

See All