Sherman: The Debt-Fueled Boom Is Breaking the Bond Market | Bloomberg TV

Image

Jeffrey Sherman, CFA - Deputy Chief Investment Officer

DoubleLine Deputy CIO Jeffrey Sherman joins Bloomberg’s The Close to unpack the latest leg of the bond sell-off, which he attributes to a confluence of anxieties, from AI-driven hyperscaler capital expenditure (capex) to years of unresolved fiscal excess across the developed world. With the U.S. deficit potentially approaching $40 trillion by Labor Day and few global central banks providing relief on the inflation front, Mr. Sherman sees the bond market voting with its feet, pushing the long bond to a new cycle high above 5.30%. He’s careful to distinguish this from true bond vigilantism, which he describes as a sudden, disorderly spike of 20 basis points to 30 basis points in a single day tied to a rejection of fiscal policy, rather than the orderly grind higher that markets have seen so far. He’ll be watching the 10-year U.S. Treasury’s brush with the psychologically important 5% level as the next real signal to confirm the move.

On the disconnect between widening Treasury yields and still-tight credit spreads, Mr. Sherman notes that most corporate issuance sits in the front end to belly of the curve, largely insulated from the long-end sell-off, though he flags real weakness building in hyperscaler-related credit as investment grade, high yield, ABS and CMBS markets all compete to fund the same AI capex boom alongside record government borrowing. Asked to pick the single biggest driver of where bonds go from here, Mr. Sherman doesn’t hesitate: inflation. With the Federal Reserve talking tough but not yet acting, and war-related spending still working its way through the system, he sees inflation hawks clearly winning the argument for now, and continues to view the 10-year holding above 5% as the development that would meaningfully change the conversation for investors.

Read More from DoubleLine Capital

The InsuranceAUM.com podcast is available on

Share this post

Contacts

---

DoubleLine Capital LP

Image

DoubleLine has been managing money for insurers since its inception in 2009. The firm's focus on securitized fixed income and risk management positions it well to manage money for insurers. The firm offers an array of fixed income strategies including dedicated ABS, private ABF, CLOs, infrastructure debt, non-QM, commercial and residential loans, multi-sector fixed income and EM. We understand that the needs of each insurer can vary, and our insurance team is focused on providing our clients with unparalleled access to the investment team and creating custom solutions to meet their distinctive objectives. DoubleLine wants to be your fixed income partner.
 

Paul Schroeder, CFA   
Relationship Manager- Insurance  
paul.schroeder@doubleline.com
Direct: 213-372-3123
Main: 813-791-7333
 

View the contributor page