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Capital Perspectives: Inflation risk revisited

Capital Perspectives: Inflation risk revisited By: Chas Craig Guest Columnist April 6, 2021 Chas Craig Last June I wrote a column entitled “Inflation Risk” for The Journal Record. I stated that “common sense dictates that government deficits and the resulting debt can’t be monetized via Fed purchases of Treasury obligations in increasing amounts without causing an inflationary impulse at some point.” The point was not so much that I had a high level of conviction that inflation would spike, but that the market seemed very certain that it wouldn’t. The difference between 30-year nominal and inflation protected Treasury bonds (the breakeven rate), a rough estimate of the market’s expectation for average inflation over the period, registered at roughly 1.5% at the time, a level well below the Fed’s goal of averaging 2%.

The Fixed Income Conundrum: Part 2 Diversification Solutions

The Fixed Income Conundrum: Part 2 Diversification Solutions April 5, 2021 For investors and advisors, planning for income has been a consistent and escalating challenge for more than a decade. More recently, we have seen a yield curve inversion, a recession, and the 10-year treasury drop to a historic low at just over 0.50%. Today, plan implementation with traditional bonds is as challenging as it has ever been while inventories are light, spreads are tight, and yield is hard to come by. At the same time, we have seen a massive rise in the availability and adoption of fixed income ETFs as a viable alternative to achieve diversified exposure in the fixed income markets. In fact, according to Bloomberg, U.S. fixed income ETF assets are nearing $1 trillion (exhibit 1). Additionally, fixed income ETF growth has spanned all areas of the fixed income market and now offers easy access and diversification opportunities previously not readily available to individual investors. In the fol

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