John Kerschner and Michael Contopoulos of Janus Henderson join Matt Zeigler to explain why persistent inflation and higher interest rates call for a different approach to bond investing. They explore short-duration bonds, AAA CLOs, mortgage-backed securities and how investors can rethink the fixed income allocation in a 60/40 portfolio.

The conversation covers why traditional bond benchmarks may deliver too much interest rate risk for their yield, how ETFs expand access to securitized credit, and why the AI buildout could add to inflation rather than solve it.

High-Conviction Views: The time for short-duration bonds
https://www.janushenderson.com/en-us/advisor/article/high-conviction-views-the-time-for-short-duration-bonds/

Janus Henderson Investors
https://www.janushenderson.com/en-us/advisor/

Topics covered:

Why deglobalization, fiscal spending and labor constraints could keep inflation and interest rates elevated
How the Bloomberg US Aggregate Bond Index concentrates interest rate risk and leaves out large parts of the bond market
How AAA CLOs work, why their coupons float, and why they are different from cash
Why tight corporate credit spreads may offer insufficient compensation for the risks investors take
The three jobs of fixed income: safety, income and insurance
How duration determines whether rising rates can wipe out a bond portfolio's income
Why bond ETF discounts can reflect price discovery when underlying bonds are not trading
How Treasury borrowing and AI hyperscaler debt issuance affect bond supply and relative value
Why AI capital spending, electricity demand, labor shortages and wealth effects can create inflation
How to rebuild the bond allocation around securitized credit, agency mortgages and the risks in your equity portfolio

Timestamps:

00:00 Rethinking bonds after years of disappointing returns
04:28 Why the forces behind the bond bull market have changed
10:09 The hidden interest rate risk in the Aggregate Bond Index
14:53 AAA CLO ETFs: Floating income, structure and drawdown risk
20:44 Treasury fiscal risk and tight corporate credit spreads
26:16 Moving beyond set-and-forget bond funds
30:45 How duration can overwhelm your bond yield
36:27 Bond ETF liquidity and price discovery during stress
41:11 Treasury borrowing, AI debt and securitized bond supply
46:00 How hyperscaler borrowing can create credit market dislocations
50:29 Four reasons AI could increase inflation
55:56 Rebuilding the 40% bond allocation in a 60/40 portfolio
01:02:00 Municipal bonds, recession protection and balancing equity risk

Learn more about the Excess Returns podcast network:
https://excessreturns.co

No information discussed in this podcast should be construed as investment advice. Securities discussed may be held by the hosts and guests, their firms or their clients.

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