The U.S. Treasury yield curve, DoubleLine Global Bond Portfolio Manager Bill Campbell writes in a new research paper, likely will steepen further under the effects of both federal funds rate cuts on short-term interest rates and fiscal pressures elevating the term premium embedded in longer-term Treasury yields. “In this cycle and beyond,” Mr. Campbell writes, DoubleLine’s “investment team will remain vigilant for upward fiscal, monetary and political pressures that risk escalating the term premium embedded in Treasury rates. For reasons which I’ll outline below, political gridlock in Washington, D.C., including the Oct. 1 shutdown of nonessential government operations, does not alter this outlook.”
The key risk to “to the steepener trade.” according to Mr. Campbell, would be a change in the Fed’s balance sheet policy. In June 2022, the Fed resumed engaged in QT by reducing its holdings of Treasury securities and Agency mortgage-backed securities…. To date, the Fed has maintained a resolute focus on a careful balancing of inflation and employment mandates. However, given the policy preferences aggressively pursued by the White House, the possibility one day of a politicized Fed bent on yield curve control cannot be dismissed for the future.”
Mr. Campbell joined DoubleLine in 2013. He oversees the firm’s Global Sovereign Debt team and serves as a Portfolio Manager of the DoubleLine Emerging Markets Local Currency and Global Bond strategies. He is a permanent member of the Fixed Income Asset Allocation Committee. Prior to DoubleLine, Mr. Campbell worked for Peridiem Global Investors as a Global Fixed Income Research Analyst and Portfolio Manager. Prior to that, he was with Nuveen Investment Management Co., first as a Quantitative Analyst in the Risk Management and Portfolio Construction Group then as a Vice President in the Taxable Fixed Income Group. Mr. Campbell also worked at John Hancock Financial as an Investment Analyst. He holds a B.S. in Business Economics and International Business, as well as a B.A. in English, from Pennsylvania State University. Mr. Campbell holds an M.A. in Mathematics, with a focus on Mathematical Finance, from Boston University.
