Duration Rally Is 'Big Case' for Fixed Income: Tirupattur

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00:00So I think the best opportunity in the Treasury market is in the steeper trade.

00:05So what we'll consider 3s-30s, 2s-30s, we expect that we'll find, you know,

00:11I think where there's a significant mispricing is in the number of rate cuts that are priced into the Treasury market today.

00:19So roughly about two cuts of price this year, about two cuts of shade around that price for next year.

00:26So next year, we think that, well, our economies expect no cuts this year and substantial number of cuts, seven cuts next year.

00:34So the world pans out according to how we are imagining it, which means the economy slows but doesn't tip over into recession.

00:43So economy slows to 1% in 2025, 1% in 26, and unemployment rate doesn't really spike

00:52because unemployment rate is a function of both the labor force supply.

00:57So immigration has a big impact on it.

01:00We expect unemployment rate to tick up but not spike.

01:03So we put all those things together.

01:05We think there's a good case for Fed not to cut this year but having to cut a lot more next year.

01:10So I understand the steeper trade in that.

01:12But historically, if someone sat here and said, we're going to cut seven times in the next 18 months, long duration is the play here.

01:18How come not just by the outright 10-year, outright 30?

01:20We actually, we're not, absolutely, we would be recommending that as well.

01:23Our expectation is 12 months from now, 10-year Treasury will be in around 345.

01:28So it's a pretty substantial rally.

01:31In fact, our big case for fixed income in general is really the duration rally.

01:36So it's 100 basis point rally in 10-year Treasury, roughly.

01:41And that's a pretty significant uptake.

01:43Just to put some underscore on this, are you saying that all the people saying, sell 30-year Treasuries, short 30-year Treasuries, guess what?

01:52This is going to be absolutely the risk asset.

01:54You're taking the other side of that?

01:55So what we are saying is that what will eventually matter is how the growth expectations and the policy response,

02:02the Fed's response to those growth expectations, we think currently they are off.

02:06And if we, if the policy turns out to be the way we are anticipating it to be, we think, you know, duration is a good bet.

02:13Duration is a good bet.