Brij Khurana, Fixed Income Portfolio Manager, Wellington

The conventional neo Keynesian or general equilibrium models that the Fed really relies on, the things that they were targeting with interest rates actually were not highly correlated with interest rates themselves. And the most common thing is investment. And when we think about investment, obviously, there's housing investment which is very correlated with interest rates but you could argue that's almost an asset price rather than real form of investment. And then what I'm really talking about is non residential investment which should be the thing that is very correlated with interest rates

Hello. This is Dean Kernutt and welcome to the Alpha Exchange where we explore topics in financial markets associated with managing risk, generating return, and the deployment of capital in the alternative investment industry.

My guest today on the Alpha Exchange is Bridge Kurana. He is a fixed income portfolio manager at Wellington Management. Bridge, it's a pleasure to welcome you to the podcast today.

Thanks for having me, Dean.

I saw your well written piece in the Feet about a month ago that was really linking monetary policy to the wealth effect. Wanted to connect with you and solicit your insights and analysis. It's such an interesting time that we're having this conversation with a significant backup in bond yields, monetary policy in flux. So tons to talk about. Give us a little bit of sense of your day to day at Wellington. You run an unconstrained go anywhere bond fund. Tell us a little bit more about that.

It's an interesting time to be a bond portfolio manager for sure. As you mentioned, I run an unconstrained strategy, so it's really go anywhere. We go where the opportunities are. It could be in rates. It could be in credit. It could be in currencies. And historically, you know, ten years ago when I first came to Wellington, a lot of my time was actually spent on the credit markets because that is where the opportunities are. And increasingly my days are focused on G10 rates because that's been the asset that's been extraordinarily dislocated relative to the last few years and even obviously r

Well, I'm plenty older than you are, but my own start in the career was 1991. And I worked in fixed income research at Nomura. And I got onto the desk and the ten year yield at eight and a quarter. I think inflation was 4%. So you had a giant term premium. So who knows? Maybe we just haven't seen the highs yet in yield.

I was just pulling up the five year real yield today, and I was just trying to see what is the six months change, and it's been about 100 basis points over the last six months increase. Actually, I think it's 130, which is one of the highest increases of a six month time horizon. But when I pulled the data back to 1995 or 1996, whenever the five year tip was first issued, the real yield was three and a half percent. So it was a good reminder as high as they look right now today. Obviously, in the 90s, they were, you know, as you said, 8% rates and 4% inflation. Real yields could also certainly

Well, we're going to talk a lot about the here and now about The US rate environment, the global rate environment. This is not specific to The US with what's happening here. It's a developed market sovereign phenomenon. And we'll bring in your FTPs. You wrote another piece, which I really wanted to start with, which was entitled What Hath Low Rates Wrought? And it's an analysis of the reality that for the past twenty five years, many of them have been spent with the policy rate stuck at zero with negative real yields. You make this point, and it