All ‘Bout Those Rates

Real yields rather than inflation expectations are driving the rise in long-term rates, creating opportunities in TIPS, short-duration bonds and selective credit.

• Inflation expectations remain reasonably contained despite recent hot CPI and PPI readings, while real yields have risen to levels last seen in 2009.
• The authors favor the short end of the Treasury curve because it carries less duration risk and because the market may be pricing too many rate hikes after a weak September jobs report.
• Long-dated U.S. Treasuries offer a 5.60% yield-to-maturity, but the authors warn that yields could rise further if concerns about fiscal sustainability lift inflation expectations.
• Credit spreads are diverging: some French corporate bonds trade at lower yields than French government debt, while cash-rich hyperscalers retain tight spreads and CoreWeave faces wider spreads because it depends on third-party guarantees such as Nvidia's.
• Latin American debt has performed better than expected as some governments move right and spending fears moderate; Peruvian debt has outperformed Lithuanian debt, while French OAT yields are viewed as having risen too far, too fast without yet being a buy.

Takeaway: Investors should favor liquidity, consider TIPS and short-maturity exposure, and be selective in credit because rate-hike expectations may be excessive but fiscal and idiosyncratic risks remain; the authors point investors toward Kurv's LQID ETF as a way to express this view.