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DoubleLine Podcasts

MMM Episode 62: A Red Week for Markets, Predictive Gauges for Fed Funds

After covering the week of April 18-22 for U.S equities, fixed income and commodities (2:06), hosts Jeff Mayberry and Samuel Lau put the 9.4% year-to-date negative return of the Bloomberg US Aggregate Bond Index into historical context (6:41). So far, the ongoing drawdown that began August 2020 is the second-worst peak-to-trough decline in the history of the Agg. The worst, recorded back when the then-Lehman Brothers US Aggregate Bond Index was calculated monthly, was a decline of 12.7% from a peak at the end of July 1979 to a trough at the end of February 1980. After that perspective from the rear-view mirror as well as a review of the week’s macro news (11:08), Jeff and Sam put on their forward-looking glasses for insight into future movements and levels of the Federal Funds rate (17:08). Among their recommendations, they agree with Federal Reserve Chairman Jerome Powell that the monthly dot plot, which depicts simple polling of Federal Open Market Committee (FOMC) members on the future level of the Federal Funds rate, provides little useful information. For better guidance, Jeff and Sam rely on the formal statements of the FOMC itself, the Fed chairman’s news conferences and inter-meeting statements by Fed officials. For market indicators of expected rate moves at future FOMC meetings, they rely on the Bloomberg WIRP function and the Chicago Mercantile Exchange’s Fed Watch page. Both these tools distill rate level probabilities from pricing in the Fed Funds futures market. For an idea of where the Fed Funds rate will ultimately end up, they, like DoubleLine CEO Jeffrey Gundlach, use the yield on the two-year Treasury note.

The views and opinions expressed herein are as of the date recorded and should not be construed as an offer to buy or sell any securities. Such views/opinions may differ from those of DoubleLine Capital or other of its affiliates and are subject to change without notice. DoubleLine has no obligation to provide any updates or changes. The following audio presentations represent DoubleLine’s intellectual property. No portion of these presentations may be published, reproduced, transmitted or rebroadcast in any media in any form without the express written permission of DoubleLine. DoubleLine has no obligation to provide any updates or changes. To receive permission from DoubleLine please contact [email protected].

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DoubleLine is not providing any financial, economic, legal, accounting or tax advice in these podcasts. The receipt of these podcasts by any listener is not to be taken as constituting the giving of investment advice by any DoubleLine entity or individual to that listener, nor to constitute such person a client of any DoubleLine entity. The portfolio risk management process includes an effort to monitor and manage risk, but does not imply low risk.

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