Corporate spreads at historic lows while long bonds sell off globally is the central paradox here, and it deserves a tactical lens.
From a TAA perspective, bonds sit at rank 4 with 42.5% underweight and a downward trend, the weakest conviction among the five major asset classes. That aligns directly with Clark's "get me out of duration" signal. Commodities, by contrast, rank 2 with 43.3% overweight and an upward trend, consistent with his case for retaining gold as a hedging instrument rather than a directional bet.
Federated Hermes, Asset Allocation Award winner 2026, frames the credit paradox sharply: "Spreads have tightened meaningfully and are now tighter than pre-war levels. We remain underweight given a Federal Reserve likely to remain on hold absent a sharp economic slowdown."
The key risk to Clark's thesis is that if the Fed does capitulate and signal accommodation, corporate spreads stay compressed and equities re-rate higher, making TLT the losing trade and invalidating the mispricing argument. Is the equity market pricing in Fed credibility, or the absence of it?
in 1970/1980 with paul volcker we had 16% FFR and still gold moved higher, I have seen a study looking at correlation between US twin deficits that is more important than moves in yields and algos will find out soon
additionally, i am more concerned on dirham and riyal pegs vs USD, if this SoH closes for indef time than these countries have to give up their peg and like 1998 Asian crisis we soon get an Arabian crisis with pegs getting lifted and countries selling mainly US assets or gold to cover their currencies, main reason why scott bessent guanranteed swap lines to these nations
I am not saying that we should not worry about credit if rates go up but looking at BIS credit to GDP data for the US, we see that governement debt moved from around 100% of GDP in 2018 to 109% now. During this time, corporate credit moved from 78% to 72.5%. Corporates are moving in the right direction and I think this is what the spread reflect. The Bloomberg global agg still has not recovered the drawdown from 2021-22 while the HY index has. Could credit risk look more attractive than duration risk, supporting relative flow to credit?
It should: "total credit comprises financing from all sources, including domestic banks, other domestic financial corporations, non-financial corporations and non-residents."
Hi Russel, thanks - one issue that gold has at the moment is that its marginal buyers are in Asia and as long as the energy crisis continues these economies are likely to continue to see pressure on their ccy, and might be forced to keep selling gold - even if they do some sort of yield curve control in the US.
Only Turkey has had to sell gold I think. We have seen India try and discourage retail to buy gold as well. But Japan has had to sell treasuries to strengthen its currency (it has no gold to sell), and Chinese Yuan looks pretty strong to me.... One thing people forget about having a hedged portfolio that works (GLD/TLT) for example, is that the losing side of that trade starts to shrink pretty quickly anyway.
Seeing it across the entire risk asset complex simultaneously- US corporates, SSA/EM eurobonds, equities all compressing spreads at the same time that risk-free rates are grinding higher. Think we see domino effect at a certain risk-free level.
Yes
I like brevity... Still think its needed to hedge CB craziness.
I think that is a prudent decision, YCC definitely feels like the way forward
Corporate spreads at historic lows while long bonds sell off globally is the central paradox here, and it deserves a tactical lens.
From a TAA perspective, bonds sit at rank 4 with 42.5% underweight and a downward trend, the weakest conviction among the five major asset classes. That aligns directly with Clark's "get me out of duration" signal. Commodities, by contrast, rank 2 with 43.3% overweight and an upward trend, consistent with his case for retaining gold as a hedging instrument rather than a directional bet.
Federated Hermes, Asset Allocation Award winner 2026, frames the credit paradox sharply: "Spreads have tightened meaningfully and are now tighter than pre-war levels. We remain underweight given a Federal Reserve likely to remain on hold absent a sharp economic slowdown."
The key risk to Clark's thesis is that if the Fed does capitulate and signal accommodation, corporate spreads stay compressed and equities re-rate higher, making TLT the losing trade and invalidating the mispricing argument. Is the equity market pricing in Fed credibility, or the absence of it?
in 1970/1980 with paul volcker we had 16% FFR and still gold moved higher, I have seen a study looking at correlation between US twin deficits that is more important than moves in yields and algos will find out soon
additionally, i am more concerned on dirham and riyal pegs vs USD, if this SoH closes for indef time than these countries have to give up their peg and like 1998 Asian crisis we soon get an Arabian crisis with pegs getting lifted and countries selling mainly US assets or gold to cover their currencies, main reason why scott bessent guanranteed swap lines to these nations
more fun things to watch soon I guess...
Yes... but there is also a lot of investment into the US that could get pulled too....
I am not saying that we should not worry about credit if rates go up but looking at BIS credit to GDP data for the US, we see that governement debt moved from around 100% of GDP in 2018 to 109% now. During this time, corporate credit moved from 78% to 72.5%. Corporates are moving in the right direction and I think this is what the spread reflect. The Bloomberg global agg still has not recovered the drawdown from 2021-22 while the HY index has. Could credit risk look more attractive than duration risk, supporting relative flow to credit?
Is that including private credit?
It should: "total credit comprises financing from all sources, including domestic banks, other domestic financial corporations, non-financial corporations and non-residents."
- https://data.bis.org/topics/TOTAL_CREDIT
Hi Russel, thanks - one issue that gold has at the moment is that its marginal buyers are in Asia and as long as the energy crisis continues these economies are likely to continue to see pressure on their ccy, and might be forced to keep selling gold - even if they do some sort of yield curve control in the US.
Only Turkey has had to sell gold I think. We have seen India try and discourage retail to buy gold as well. But Japan has had to sell treasuries to strengthen its currency (it has no gold to sell), and Chinese Yuan looks pretty strong to me.... One thing people forget about having a hedged portfolio that works (GLD/TLT) for example, is that the losing side of that trade starts to shrink pretty quickly anyway.
Seeing it across the entire risk asset complex simultaneously- US corporates, SSA/EM eurobonds, equities all compressing spreads at the same time that risk-free rates are grinding higher. Think we see domino effect at a certain risk-free level.