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.
Jeffrey Sherman, DoubleLine’s Deputy Chief Investment Officer, is a thought leader, portfolio manager and public speaker in the industry. Mr. Sherman is a member of DoubleLine’s Fixed Income and Global Asset Allocation committees, and he serves as lead portfolio manager for the firm’s multi-sector and derivative-based strategies. In his role, Mr. Sherman guides the investment teams in developing top-down macro views and collaborative asset allocation processes throughout a market cycle. Additionally, he is a member of DoubleLine’s Executive Management Committee. In 2018, Money Management Executive named Mr. Sherman as one of “10 Fund Managers to Watch” in its yearly special report. Prior to joining DoubleLine in 2009, Mr. Sherman was a Senior Vice President at TCW, where he worked as a portfolio manager and quantitative analyst focused on fixed income and real-asset portfolios. Prior to that, he was a statistics and mathematics instructor at the University of the Pacific and Florida State University. Mr. Sherman taught Quantitative Methods for Level I candidates in the USC/CFALA CFA® Review Program for many years. He holds a B.S. in Applied Mathematics from the University of the Pacific and an M.S. in Financial Engineering from Claremont Graduate University. Mr. Sherman is a CFA® charterholder.
