Personal Wealth Management / Market Volatility
Fisher Investments' Founder Ken Fisher Shares His Fixed Income Outlook
Fisher Investments’ founder, Executive Chairman and Co-Chief Investment Officer Ken Fisher shares his current outlook on fixed income, or bonds. Ken explains that fixed income markets are relatively more efficient than other financial markets—like the stock market—because fewer variables affect them. Considering bond prices move inversely to interest rates changes, Ken expects short-term bond prices to remain relatively volatile since central bank policies drive short-term interest rates. However, Ken believes moderating inflation—a key driver of long-term rates—may lead to more stable long bond prices in the future.
Ken explains bond investors demand higher compensation (interest payments) when inflation expectations are high. Thus, current long-term rates imply that market participants do not expect inflation to accelerate or linger at present levels long term.
Regarding short-term rates, Ken says it is very difficult to predict central bank policies, with rate estimates varying wildly during the year. At present, Ken expects the Fed will continue to raise rates, but the exact magnitude and timing of the hikes is hard to predict.
Title screen appears, “Fisher Investments' Founder Provides His Market Outlook for the Remainder of 2022.”
Below the title is text that reads "Recorded July 14th 2022"
A man appears on the screen wearing A navy suit, sitting in front of a fireplace.
He begins to speak.
A banner identifies him as Ken Fisher, Executive Chairman and Co-Chief Investment Officer, Fisher Investments.
Ken Fisher doing hand gestures time to time explaining.
Ken Fisher: This year more than most because bonds have started off with such low total returns in the first half of the year, people have wanted to have a sense of where fixed income might go. I'm just going to say that fixed income markets are actually relatively more efficient by nature than, let's say stock markets that have many more variables that affect them.
Ken Fisher: When we look at fixed income there's some part of it the short end that's controlled by the Fed or the central bank of whatever country you're in and the long end that's nudged by central banks that's really controlled by free market and both have been ugly this year. The reality of that however, I think needs to be put into a different context which is that the long end is hugely impacted by what happens over the long term with inflation. Intuitively lenders expect to be compensated for inflation risks when they make longer term loans and so the more, they expect inflation to be high over the time of a loan that they make the more they would demand in interest payments for making that loan or they wouldn't be willing to make the loan. In many ways it's just an interesting fact that with inflation having risen in the first half of the year sequentially over time and ending the period at levels that get close to an approximating 10% annual rates, that for. Months now.
Ken Fisher: Since February, I've been able to get the long bond to sustain at a rate above 3%. And as I speak, currently at about 2.95%. What does that mean in my view? In my view that means that the markets actually analyze this and look at this and do not believe that this inflationary period is sustainable in the longer term, that this inflation is in fact transitory. It's just a question of what transitory really means. How long is transitory? I don't really know the answer to that and neither do you.
Ken Fisher: But what I believe to be true is that much more of what's going on with prices is about all of the supply chain issues that have been working their way through the, if you will, gut of the economy, than they are traditional concepts of printing or creating too much money. Money isn't really much printed, it's mostly created which is a different thing. The printing concept is a false phraseology since not very many people use paper money anyway anymore. But the reality is, in my view that the supply chain problems with time will be worked through. Every major corporation in the world is as much as they can be on that right now and there's not a lot of reason for new dislocations to occur moving forward. So, I would expect that when we look over the next 18 months we see the supply problems go away and the long end to be fairly benign.
Ken Fisher: The question that no one can really control is what happens on the short end with central banks, the Fed in America in particular, focusing on raising rates. And there's no question those rates are going to go up in the short term. The central bank has been relatively clear about that. What isn't clear for sure is how much there are always and you can find these online estimates and betting markets on how much they will raise rates or not. And in reality, when you look overtime, those numbers bounce around quite wildly. You can't really take them as some real valid indication of what will occur.
Ken Fisher: I expect the rates to increase, but that to be over fairly soon. I expect the inflation to moderate. I don't exactly know when, but as that happens, we should expect to see a relatively stable and slightly benign long bond and to see this period of ugliness in the long bond end. Thank you very much for listening to me.
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A series of disclosures appears on the screen “Investing in Securities involves a risk of loss. Past performance is never a guarantee of future returns. Investing in foreign stock markets involves additional risks, such as the risk of currency fluctuations. The foregoing constitutes the general views of Fisher Investments and should not be regarded as personalized investment advice or a reflection of the performance of Fisher Investments or its clients. Nothing herein is intended to be a recommendation or a forecast of market conditions. Rather it is intended to illustrate a point. Current and future markets may differ significantly from those illustrated here. Not all past forecasts were, nor future forecasts may be, as accurate as those predicted herein.”
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