John Deihl [00:00:07] Julie I just came in from about three straight weeks on the road, spending

my time with financial advisors, financial professionals, their clients, you name it. And I'll tell you, I

can't remember a time in my 30 plus year career when things have been so up in the air,

especially about fixed income markets. I mean, these are the markets that are supposed to

provide stability. And throughout 2022, they've been nothing but a source of frustration, volatility

and and that word uncertainty. I don't know if you've felt the same.

Julie Genjac [00:00:41] John I've experienced the same thing. In fact, in the conversations that I'm

having with financial professionals, it feels as if they're about ready to abandon the whole

category of fixed income and just look forward. And and I feel like there's an opportunity to break

this down a little bit today.

John Deihl [00:00:57] I think when we when we hear the term capitulation, a lot of us know exactly

what it means in the equity markets. But, you know, it's sure been feeling like we've been getting

closer to that in the fixed income markets.

Julie Genjac [00:01:10] Well, I think there's no better time than to have a gone with us to break

down some of his thoughts, philosophy and look at the opportunities that lie ahead as it pertains

to fixed income. Today, we're joined by a morgan two managing director at Wellington

Management and fixed income strategist for Hartford Funds. As an investment director and

Investment Products and Strategies, Amar works closely with investors to help ensure the

integrity of their fixed income investment approaches. This includes meeting regularly with fixed

income investment teams and overseeing portfolio positioning, performance and risk exposures,

as well as developing new products and client solutions and managing business issues such as

capacity fees and guidelines. He also meets with clients, prospects and consultants to

communicate Wellington Management's investment, philosophy, strategy, positioning and

performance. Prior to joining Wellington Management in 2018, he worked as a strategist at

Grantham, Mayo and Waterloo on both fixed income and asset allocation strategies. Previously,

he served as the Deputy Director of the Office of Debt Management at the US Treasury

Department. He also held roles in fixed income markets as an investment grade portfolio manager

at UBS Global Asset Management, a derivatives solution strategist at Merrill Lynch and a credit

analyst at UBS Investment Bank. He has an MBA from the University of Chicago Booth School of

Business, a master of Science in European Political Economy, from the London School of

Economics and Political Science and a Bachelor of Arts from Vassar College.

John Deihl [00:02:46] I am really looking forward to our listeners getting to hear the conversation

that we recently had with Amar about his views of fixed income and where we go from here. Hi,

I'm.

Julie Genjac [00:02:58] John, and I'm Julie.

John Deihl [00:03:00] We're the hosts of the Harvard Fund's Human Centric Investing podcast.

Julie Genjac [00:03:05] Every other week, we're talking with inspiring thought leaders to hear their

best ideas for how you can transform your relationships with your clients.

John Deihl [00:03:14] Let's go.

Julie Genjac [00:03:17] Amar Welcome to the Human Centric Investing podcast today. Thanks for

being here with us.

Amar Reganti [00:03:22] Thanks for having me.

John Deihl [00:03:23] Amar, thanks for being with us. And my first question for you is that as I've

traveled with financial advisors over the past several months, probably the thing I hear most about

these markets is that there's no place to hide. Right. Fixed income was supposed to be our our

bastion in the storm, if you will. Can you share with us a little bit about what's happened? And

and as an advisor, how would you try to explain that to your clients, especially clients who

thought that, you know, they were allocated in a somewhat of a conservative position?

Amar Reganti [00:03:59] Yeah. Well, that's a great question. Generally speaking, over long periods

of time and for the long term investor, fixed income, you know, can be that diversifier to your

overall allocation. But there are and historically there have been narrow periods of time where you

have these bursts of inflation. And, you know, many fixed income asset classes don't do well, nor

do equities during those narrow periods of time. So the challenge, of course, that is the

diversification feature declines. But really, I think what's important is to try to understand whether

they think that that burst of inflation is a permanent or structural feature or is going to continue

higher, or they think it's going to normalize or come lower in the next several months to a year.

And in that case, fixed income resumes its really critical role in a portfolio. And, you know, this

isn't to overemphasize this, but there's also fixed income strategies that have been able to

navigate this period of turbulence much better than than other ones. So, you know, for example,

you know, a global bond allocation that really looks at, you know, relative value between interest

rates and currencies like that. That has been one that that can navigate these periods in a way

that is probably a little bit more within the expectation range of the advisors that you've been

talking to.

Julie Genjac [00:05:23] I'm worried. You just started to talk about the different types of fixed

income. And it seems like when we talk about fixed income, oftentimes we lump it all together

into one bucket. And could we maybe just since we're kicking things off today, start to unpack

and define some of the different types and areas? And and as you define those for us, are there

any that are looking more attractive now as we as we look forward?

Amar Reganti [00:05:48] Yeah, it's always amazing. As you know, we all know that people can

have a long discussion about the different types of equities out there and the different type of

equity strategies. But fixed income is often lumped into just sort of one, you know, one type of

asset class when the reality is, is that, you know, it's an extremely diversified, diversified sector

and within it are lots of subsectors and strategies that perform in in really different ways in

different parts of the cycle. So just, you know, from our perspective, we've often thought of fixed

income, something that can provide income, it can provide, you know, risk diversification. In some

cases, it can provide tax relief depending upon, you know, if you're in tax exempt or taxable

municipal bonds. So it can provide a great deal of different things. But I think oftentimes people

just treat it as like this one type of asset class. And within the fixed income world, there are a

number of sub asset classes and approaches that make a lot of sense for people to take a look

at. Are we would I mentioned approaches via global bonds where you can look across the entire

fixed income space around the world and decide whether or not or you're your manager or

strategy strategist can decide whether or not, you know, the bonds of one particular country look

better relative to the bonds of another country. And by, you know, looking at the differences

between these types of interest rate curves or foreign exchange, there's it's actually a way of

being able to take advantage of the volatility that's currently plaguing markets. And you've seen

strategies that can do that. In other cases. What you know, the strategies that a lot of people are

familiar with core, core plus or municipal bond strategies have traditionally existed to be both

liquid and a form of capital preservation and in the case of municipal bonds, are a way of

receiving tax exempt income. Those are also utilized in times when there's recessions, right.

They're there to help protect you or your allocation in periods of deflation and periods of flight to

quality, or when people are sort of rushing to the safety of higher quality bonds. And then, you

know, you can look at the credit markets where there's a large spectrum of different types of

issuers from emerging market countries to high yield credit, to high quality investment grade

corporates, all of which would provide yields and income that, you know, I think, you know, a lot

of advisors might find interesting. And and remember, just two or three short years ago, though, it

probably feels like a long time now. You know, those interest rates and yields were at very, very

low levels and people were struggling for ways to really look at fixed income as a source of

continuing income in their portfolios. Now, there's there's a pretty large opportunity set that's

involved, and it really bears taking a look at all the different facets and features.

John Deihl [00:08:58] So more right now in the fixed income markets. I mean, a lot of times you

hear, especially when inflation is low, you start hearing about people theorizing about the

mandates of the Federal Reserve. Right is at full employment is an inflation is that would you say

that this market is really solely focused right now on inflation, that causes of inflation, how to

combat inflation? Is that really the key to understanding across just about any fixed income class

what's going on right now? And and second part of that question is, you know, if you were sitting

on the Fed board, at the Fed board, what would you be thinking right now about inflation?

Amar Reganti [00:09:33] So as you mentioned, the Federal Reserve has a dual mandate. One is

focused on inflation and the other is focused on employment. And sometimes those those goals

can be at odds with each other. So the Fed has to undertake a balancing act. Prior to this year,

the Fed really was laser focused on making sure that there was a full employment recovery. And,

you know, and in a view that I think, you know, the data has sort of as changed was that that the

inflation that they were experiencing at the time would be rather short lived. So once, you know,

the end of 2021 came about and the Federal Reserve sort of took stock, you know, had realized

that employment had gotten back to are near the levels that we were at prior to the pandemic. It

really pivoted very quickly into focusing on its. Inflation mandate. And and, of course, rapidly

started raising rates in order to combat inflation and to try to bring about what I would call a

looser set of financial conditions or sorry, tighter set of financial conditions. I apologize. That

would slow the economy enough that it would cool inflation. Look, if I was, you know, sitting on

the Fed board, I of course, you know, as mandated I'd have to really do I would have to think

about inflation. But of course, I would proceed relatively cautiously and and tighten financial

conditions via interest rate hikes. But then I would certainly pause and think to see how long it

took for that to pass through, as we know and as we've discovered. Monetary policy operates

with significant lags. So what you're doing today might not show up for months into markets. And

additionally, whether or not, you know, this Fed, I guess, likes it to some degree because of the

size of the U.S. economy, the preponderance of its capital markets, and the role of the dollar as

the reserve currency in the world. Central bank policy in the United States has ripple effects into

the rest of the world, and that ripple effects can be destabilizing. It can damage growth around

the world. And I think, you know, we always have to understand that that stuff can can easily spill

over into our own economic conditions. And the Fed, you know, needs to be hyper cognizant of

that, whether or not it's sort of narrowly within the mandate that I just described earlier.

John Deihl [00:11:56] Amar a moment ago, you mentioned yield to worst for financial advisors.

Not familiar with that terminology. How would you further describe yield to worse? What does that

mean?

Amar Reganti [00:12:08] Yeah. I'm going to paraphrase here because this isn't a textbook

definition, but but it's a term that's used among fixed income professionals, really, as a way of

doing an apples to apples comparison across different types of fixed income securities. It really is

about the lowest possible yield, excluding default, that a bond can have, given where it's trading

in dollar price and where its secondary yield is trading on the bond market. So yeah, that's how

we would look across a number of different bonds and compare like, you know, what the yields

were.

Julie Genjac [00:12:45] So you talk about a ripple effect tomorrow. And obviously there's been a

lot of news about the U.K. markets. And could you talk us through a little bit about sort of what

happened there and how does that impact what's happening in the US, if at all, and and maybe

how our regulators are thinking about things as we look forward?

Amar Reganti [00:13:03] Yeah. So the U.K. is, I think, a really interesting example of what happens

when you make rapid, you know, almost violent turns in monetary policy. So over the course of

this last year, interest rates now at states rose rapidly and they rose. And the European Union and

the U.K. as well are both sort of in sympathy with what was happening with with central bank

policy, global inflation conditions and so on. And, you know, that that's that can be expected to

happen. But what happened within the United Kingdom was, is that there was a rapid rise in rates

over that period of time. And many U.K. pension entities did asset liability matching. Right. They

they had a sense on their liability side that they you know, they had the sort of maturity of their of

their liabilities effectively when they're going to be paying out to their participants. And they they

matched that on the asset side. And oftentimes how they would match it is by receiving fixed

rates. And they would do this via, you know, the derivative markets, either in swaps or in futures

that comes off as as a as a, you know, almost like a a bad word sort of words. But that's that was

literally them trying to balance their assets and liabilities and using a number of financial

instruments to do that. The challenge is that when interest rates go up really, really quickly, well,

they have one positive impact for the U.K. pensions, which is that their liabilities shrink because

they're discounting those liabilities by the higher interest rate, which means that they get smaller.

But the problem, of course, is, is that they were on on their assets side of their balance sheet.

They were actually receiving fixed rates via derivatives. And what happens in derivatives is if

there's a change in the positioning, where the position moves against you, as it does, if rates rise

and you you hold a fixed rate instrument, they had to post collateral to sort of make up for for that

change. And it was a rapid rise in rates and it happened very quickly. So they had to post a

substantial amount of collateral. And what that leads to often is a sale of assets in order to do

that. So they sold, you know, a lot of liquid assets. And you can you know, we heard this and saw

this via the popular press, the financial press and, you know, statements by the U.K. regulatory

community. And and, of course, as they're selling those assets, they're adding pressure in upward

movements in rates. Now, this didn't happen by itself. There was a catalyst to this, which was the

U.K. government released what was called the mini budget. And the mini budget effectively was

calling for a set of tax cuts in order to spur growth. But as we all know, the U.K. is facing a

substantial set of inflationary conditions. So when you're having inflation and your government

budget program is what they would call pro-growth, which involves tax cuts and probably more

deficit spending that really shocked the U.K. interest rate markets and gilt markets, which is the

sovereign bonds upward and higher. And that fed, you know, this cycle that had been happened,

that it's slowly been happening, but really was the catalyst that drove things sharply higher then it

caused all of these U.K. pensions to have to post collateral, and that caused the sale of assets.

And then again, that drove things upward. Now, the U.K. regulators and the Bank of England has

attempted to intervene. And again, that was somewhat effective. Then they said they weren't

going to do it, and that caused a bit more instability in the market. And finally, I believe, as of, you

know, fairly recently, the new newly appointed chancellor of the Exchequer, Jeremy Hunt, is

reversing the government's policies and that's bringing some stability to markets. And this was a

long way of saying that rapid changes in rates can often be very destabilizing events, not just in

fixed income, but across all capital markets.

John Deihl [00:17:02] So, Amar, I know, but boy, about a year ago, everybody was talking about.

Within the fixed income portion of your portfolio duration, right. Where should duration be?

Should we be shortening? Should we be lengthening given what we've been through? And what

may lie ahead? What would you counsel people about right now concerning duration? Would you

be adding would you still be pulling back? I know a lot of us may be kind of thinking about a more

defensive posture, but what would you say?

Amar Reganti [00:17:36] Look, it's, you know, being a holder of duration, you know, it's been a

very challenging time for for a lot of individual investors and market participants. But, you know,

one of the things that you have to really think about as you hold duration is like, what are you

using it for? And what it's normally utilized for is if there's some type of deflationary shock in the

economy and or if there's a flight to quality, that interest rate duration has traditionally and

historically served as an off-set. Obviously, this year, because we've had a significant amount of

inflation, that duration hasn't been helpful. But if you listen to what the Federal Reserve is saying,

what Chairman Powell is communicating is that, you know, the Fed is attempting to tighten

financial conditions. The Federal Reserve works primarily through a markets based channel.

They're trying to by raising interest rates and the process of quantitative tightening, they're trying

to slow down and candidly, probably lower portions of of the capital markets. And ideally, that will

spill over into the real economy and, you know, like effectively loosen the job market, given how

tight it is and slow down aggregate demand enough that inflation won't be as much of a problem.

You know, what the Fed is telegraphing is that it's determined to bring down inflation and it's

determined to slow down the economy. This is this is exactly sort of the usage, I think, of at least

duration for in your in your overall portfolio allocation. It's there when things are moving from, you

know, faster, intermediate to a slower level. Like that's that's how duration can be helpful in your

portfolio now. It's very hard to say now's the perfect moment. Or last week was or next week.

Yes. But my opinion has been that you should slowly be adding duration to your portfolio. And,

you know, several years ago that was actually almost a painful thing to consider because there

was an opportunity cost in that, like interest rates were really low yields or worse were very low as

well. You weren't generating much income off of the fixed income portfolio. So there was a

significant opportunity cost to adding, you know, an additional marginal dollar into your bond

portfolio. That has changed now. You know, the opportunity cost is significantly lower. In fact, I

would say it's it's reversed. Right. You're you're actually now getting paid to add duration, to add

fixed income allocations into your into your overall portfolio. And you're being paid, you know, a

significant sum based on, you know, the last several years of data, which is your in the highest

quality bonds. You're getting paid, you know, mid-single digits on a yield to worst basis. And, you

know, in what I would call a little bit more risk seeking parts of the bond market, you're getting

paid up to double digits or very close to them on a yields worse basis. That, you know, means

that you're not waiting around for returns. Those returns are theoretically accruing like as you're

holding those those bonds. So I think of it as actually a really attractive time to think about adding

duration and think about expanding the overall share of fixed income you have in your allocation.

Julie Genjac [00:20:50] Amar, just so that we're all on the same page with our listeners. When you

say duration, how are you defining that in your mind so that we're we're all on the same page?

Amar Reganti [00:21:01] Oh, sure. Well, duration is traditionally thought of, as, you know, the

sensitivity of the price of a bond to changes in interest rates. Now, generally speaking, the more,

you know, years to maturity, there isn't a bond. The longer that duration is meaning there's more

cash flows involved. And because of that, it's sensitive to, you know, changes in interest rates a

lot more than a bond that was, for example, going to mature next year because you just know it's

going to mature next year. But longer maturity bonds tend to have more duration sensitivity

overall.

Julie Genjac [00:21:39] You know, we've talked about that. These are just unprecedented times.

And I know that word is at risk of being over utilized. And I'm sure more. If you counted the

number of times in a day, you've said that it's probably too many to tally. But if I think about

financial professionals engaging with their clients, this is such an emotional time and the phones

are ringing and the emails are coming in and people are seeing the volatility in the markets and

their bar charts are shrinking on their statements. How it from a financial professional perspective,

what are some talking points or what what would be the story or the rationale of it that we could

share with them to just help clients continue to understand and have some perspective as they

look forward as it pertains to fixed income.

Amar Reganti [00:22:24] Yeah, look, I think it's good to take this sort of in the overall context of

maybe, let's say the last decade even or just, you know, slightly longer than that. This is from our

perspective, this is not 2008 and 2009. And if you were in the markets back then or even if you

weren't in the markets back then, there was really almost an existential risk that was affecting US

capital markets. At the time, it was very unclear which financial institutions were solvent or not.

You know, there were at that at that time there were there was pretty active talk of pulling money

out of bank accounts if it went above the FDIC threshold. So the basic functioning of capital

markets was extraordinarily problematic. And when you when we actually think about the full

recovery that took place in financial markets, while financial markets might have recovered

relatively quickly in the 2 to 3 years following the GFC, the real economy took a long time to heal

and indeed in some measures of of employment, we never really got back to it for almost a full

decade after the end of the crisis. That is not the situation that we're facing from from our

perspective. This is, you know, we're not facing what I would call an existential risk to capital

markets because of of near-term inflation or the Fed hiking. What we're facing is a really strong

economy that has a very tight labor market where the demand is outstripping the supply of the

economy to satisfy society's demand for goods and services. And that's that's partly what's

causing the inflation. I mean, obviously, another part of it is energy and the crisis we see in

Europe. But, you know, the part I've described about just the demand conditions within the

economy where you have a strong like a consumer that has significant savings, where you have

corporate balance sheets that are generally in good shape, where you have state and local

governments that have a lot of funds to deploy and are not in the dire situation they were in 2009

and 2010. You're talking about a economy that's in really good shape. And that's and because of

that is feeding into core inflation. Like it's that demand that is driving the Fed's requirement

almost to pivot and tighten interest rate policy. That's absolutely not the case we saw in 0809. So

what we're seeing now is while it's it's challenging to look at capital market returns, it's in the

context of a relatively strong economy. And that's a good thing because over time, if you think the

Fed is actually going to cool inflation and slow down the economy, it means there's a much, much

smaller chance of of something like turning into a crisis like situation and that even if the economy

does slow, the ability for it to come back is much better than it was where we're sitting in 2008

and 2009. And all of that allows, like from a capital markets perspective, the ability to invest with

probably a lot greater confidence than you could in 0809 when you weren't, you were really

concerned about whether the system itself could or could function without active intervention by

by the policymaking community.

John Deihl [00:25:39] So I want to revisit a topic that Julie asked you about earlier, which is

relative valuations within the fixed income market overall. So you know, and I know from speaking

with your moderate or moderately bullish on fixed income, so maybe like asking which one of

your children you love the most, right? But maybe I shouldn't put it that way. Maybe we should

talk about which one of our kids is best behaved when things go a little crazy. Right? So I guess

in that context, as you look at different sectors, you just mentioned munis, but I'm interested like

during periods like this, are there are there areas of the fixed income market that you would give a

nod to versus others that you would kind of lean to slightly versus others at this point in the

cycle?

Amar Reganti [00:26:25] Yeah. So let's just say from a starting point, you know, and I do think this

is the case that you want to that you want to grow the share of fixed income you have in your

overall allocation. Well, first and foremost, if you're trying to. Yourself from a slowing economy or

recessionary conditions on the line there. There are ways you can do that. You can look at active

strategies that are benchmarked to the the Bloomberg Aggregate Index, which is sort of the

widest widely used U.S. dollar index of high quality fixed income. And that's generally a mixture of

investment grade corporate securities agency members, which you may or may not know is under

the conservatorship the majority of of the U.S. Treasury and then the U.S. Treasury securities

market. And this sort of blended index is is is is considered sort of the proxy for investing in high

quality fixed income in the U.S. market. And that is that is sort of like the starting point for building

a sandwich. That's like the bread, right? It's it's very standard. And it it you know, we believe it

offers in recessionary conditions a better way to help protect your overall allocation. But, you

know, this this time period is not exactly the most normal one. And we talked about this. You

know, it's possible inflation remains a little bit stickier than we expect. There's tons of geopolitical

risk that we see, you know, like outside or like in Europe and and in Asia and and like that. We

don't you know, and we've said this we don't think that's going away necessarily in the near-term

either. And then additionally, all of this sort of feeds into volatility that just sort of permeates

markets. Right. And a really, you know, interesting way of taking advantage of that volatility is

through a global bond strategy and not all global bond strategies are really created the same.

Right. There's you know, there are some that just actually just go buy bonds from abroad and sort

of have those. And I don't think that's as useful to a U.S. based investors. But there are global

bond strategies that actively will be, you know, long one interest rate and short another interest

rate or long one currency versus another currency. And the point of that is to exploit differentials

both from valuation or where we are in the cycle between these and, you know, those over the

course pre-COVID, you know, I think they got, you know, relatively a little bit sleepy because there

wasn't a ton of volatility in markets, but in volatile markets, those type of strategies can do

particularly well. And I think that's actually a very forward leaning way of saying, I think the world

is going to be a little bit bouncy and this is one way of dealing with that. I mentioned munis and

it's, you know, kind of extraordinary to know it just if you look at the muni market and compare it

to where we were following the financial crisis, when state and local governments had to do

layoffs and cut back on services, that's absolutely not the case right now. You know, there you

know, overall as a sector, they're in really good shape. And, you know, when you're thinking from

a tax exempt perspective, I think it's very interesting that you can now start receiving yields that

that will actually make you take a look again at what used to be a relatively quiet asset class. So I

think of that as the high quality sort of, you know, bucket. Now, you know, if you're growing the

share of your fixed income allocation, let's say you're funding it from equities and you say, well, I

don't want to be purely more on the mitigation side or on things on just the highest quality side,

because I do want some substantial upside or look to get, you know, better, better returns than

than just mid-single-digit yields to worse. Well, then you should look to sort of more diversified

credit strategies, right? Like and that allows you to look around the entire credit spectrum and find

the bonds or sectors that are priced to deliver you over some course of time, like, you know,

robust expected returns. But remember, you know, like as you do credit and the more the more

you move down the crowd scale, look, the more volatile that allocation can be. But now you're at

least getting compensated for for that volatility. And then finally, even on the just the shorter

maturity or shorter duration type of of allocation, you know, you don't have to completely

abandoned that. You're getting paid somewhat well, too, given how high front end interest rates

have risen. So to me, as you said, it's hard to picture there are just so many different spots now

that I think are attractive in fixed income, but you can now build an allocation that is really much

more tailored toward your your needs, your risk appetite and your concerns over the next year or

two than you could two or three years ago, where you just you simply had too big of an

opportunity cost oftentimes to make that allocation.

Julie Genjac [00:31:29] So if we think about the actual implementation, will you share your

thoughts and philosophies around individual bonds versus bond funds and some of your

thoughts? There is. As we think about the future.

Amar Reganti [00:31:41] Sure. Look, I think I think I think bond funds, for a number of reasons are

something that is probably more useful to an asset owner than individual bonds. Sure. You know,

you can buy an individual bond here or there, and there's obviously nothing wrong with that. But

the you know, the challenges are unless it's like a U.S. government security, you know, you need

to go through and do the underlying credit work. Those credit details can change. Sometimes that

bond on secondary markets could have reached what we'd call like a full valuation, meaning, you

know, there's not much more room for either the dollar price to appreciate or, you know, there's

other bonds of equal quality or equivalent quality that might be more attractive or priced more

attractively. And, you know, that ability to rotate, to look across the the universe that you've

decided you need to find the right bonds to do the credit analysis on them, to maintain that credit

analysis, and then to sell them as appropriate, you know, and buy new bonds like that comes

from a fund. Right. And it's the job of that fund to put together those portfolios to worry, you

know, about which bonds aren't priced for the outcomes that they want. And then obviously get

rid of those and cycle into bonds that are it's very hard to do that. And static bond allocations.

Right. You buy it, things can change and you sort of hold on to it. And there's opportunities that

you miss and you don't effectively have the the dynamism, which I think is important, both from a

return perspective and a risk management perspective that I think is critical to successful bond

investing.

John Deihl [00:33:26] Amar Recently, we we did an informal survey on one of the webinars that we

hold on a regular basis, and we asked financial advisors whether they expected in 2023 that we

would experience a recession. And the vast majority agreed that they believed we would

experience a recession now. We didn't discuss severity. We did discuss some would say we're

already in recession, so and so forth. But, you know, as you read the headlines just over the past

several weeks, I think based on our discussion earlier about the Fed, the Fed is just about come

out and said, look, we are more willing to make a mistake to control inflation than we are making a

mistake. Worried about implications for recession, which signal to a lot of people and you

mentioned before the lag in which some of these interest rates can affect the economy. Let's let's

play out a scenario and let's say that somewhere in the midst of 2023, we're in a recession and

let's say a fairly severe recession. How would you expect fixed income to act in that scenario?

Amar Reganti [00:34:31] Yeah, so look, I think those concerns that people have on the Fed's

communications, you know, that that sounds like a reasonable concern. You know, right. When

the Federal Reserve is in this tightening process and they've they've really focused on the inflation

portion of their mandate, like history would tell you that there's a higher probability of inflation. So

in that case, right, like this is this is where fixed income, particularly high quality fixed income, will

be there to act. You know, from our perspective as a capital preservation vehicle as well as a

return vehicle, I mean, and it happens, you know, in two ways, right? If you have the right

collection of bonds, if you, you know, on the credit work, you keep, you know, any kind of what I'll

call defaults and impairments to a minimum. And then secondly, if you know, the Fed is, you

know, in the process of inadvertently engineering a recession, that means rates will have to come

lower. It likely means that, you know, both real and nominal interest rates would decline under that

scenario. And if that's the case, you know, at the cap, there's there are capital gains, valuations

and bonds. And I say this, you know, tongue in cheek, but rates go down and bond prices go up.

And but that is, you know, effectively how the math of a fixed income as a starting point at least

like work. So in that case, you know, these bonds like just saying hypothetically, if you owned a

whole collection of bonds that were yielding four or 5% and all of a sudden, you know, the fair

value for those maturities was now down to two or 3%. Well, you know that the net present value*

of that differential and interest rate shows up in the price. Right. And if you've been lucky enough

to make that allocation decision like that, that's how you'd get capital appreciation out of it. So I

and but what's really important here is that you it has to happen before that happens, right? Like

after the recession or after a recession, you're you're buying bonds that are already pricing in.

Slow growth and low inflation and have pretty low yields. And yes, I still think at that point there

can be usefulness to you in that portfolio, but it becomes less useful than making than you would

think of if you were gradually adding. While rates are at know these from at least a historical

perspective you know these near term highs. So that's why it's hard to call if you're worried about

that. If that's your concern, you know, the way to think about allocating is to begin that process of

allocating to high quality fixed income, and that includes duration of that as well. And and and

and it includes duration includes possibly, you know, thinking about like a global allocation,

includes thinking about municipal securities. All of those are depending on your needs. And that

is, you know, there to help you sort of navigate what a 2023 downturn would look like. You know,

as we talked about.

John Deihl [00:37:37] So, Amar, I guess listening to what you said there, I think, you know, when

when interest rates are calm and fixed income markets are doing what they're supposed to, we

often look at the equity markets and we tell our clients that the markets are forward looking and

we mean the equity market is forward looking. Right. So by the time you're ready to invest, you

know, the market has probably already moved. It sounds like you're telling us the bond market

may be even more plainspoken in terms of being a forward looking predictor of future economic

activity. Right?

Amar Reganti [00:38:09] Yeah. And look, I say this as as a fixed income professional, but I've

always delineated between the two is in a way, the equity market is, as you notice, yes, it can be

forward looking, but it also takes into account almost like the animal spirits of markets, right? The

current psychology for risk on or risk off. I always like to think of the fixed income market as much

more of a measurement of blood pressure right when the economy is running hot. When inflation

is hot, the blood pressure and the yields are high. When things are more quiet, where they're more

dormant, you know, that tends to come down. Fixed income markets are absolutely they attempt

to be forward looking as well. And, you know, the reason why we're in a inverted yield curve right

now is because that's the market's feedback mechanism, saying that at some point in the future,

rates, current rates will have to be lower than what they are right now. And and that's what that

inversion is telling us. Right. Just, you know, the commonly held view within fixed income markets

is that an inverted yield curve is a forward looking way of saying at some point monetary policy is

too tight and it has to be relaxed and interest rates have to come down. And usually the catalyst

for that is some type of, you know, recessionary event. And and, you know, I know equity markets

have their own lenses. I don't think, in my view, there's something as elegant as that available

necessarily in equity markets or in fixed income markets. It's sort of available on a screen to look

to take a look at a ma.

Julie Genjac [00:39:40] Those that know me know that I'm very passionate about teams and

communication and how groups of people share information, especially when it's changing so

rapidly. And for our financial professionals lifts me. And I'm confident that every single day with

things with the volatility and client inquiries, they're they're navigating their way through this

information exchange process among their own teams. Do you have any strategies or best

practices that you and your team have put into place during these times that you could share with

our listeners to help them continue to do the best job that they can? Sharing information and

making sure that everyone is up to speed and ultimately delivering the client experience that they

want to be delivering.

Amar Reganti [00:40:21] Yeah, look, I think there's a couple of things that we do that that help us.

The first is, is that we are you know, we pride ourselves on collaboration. Right. Which means I

might have a view or I might have a set of ideas. And in part, I'd like to think they're well thought

out and well-researched, but they're also shaped by my own perspectives and background and

events that I've worked there. So the more you, you, you are able to talk to teammates or

colleagues, you know, experts in different fields. The more that you can decide whether or not you

are challenging your own assumptions enough and additionally learning about things that you

may not have heard of or or or have talked about in recent in recent time. So I think making like

working in as collaborative an environment as possible is critical. And within that, that means

people need to be able to speak and share ideas and do that in a way that is is encouraged, even

though it's you can be wrong as as you know, anyone can be in anything. But that elevates a

conversation. And I know that's something that my team and my firm, we really think is part of our

culture, but it's not something that comes easily. You have to. Work at it. You have to you have to

push yourself and others to do that and to take part because it just it's not something that just

happens. So for me, I always sort of like kind of checking my assumptions, talking through with

other people who have the same and different backgrounds, I think is one of the most critical

views of getting out of your own head, just like getting out of, you know, your own set of thoughts

that comes back to the same type of conclusion time and time again. And that doesn't mean

you're incorrect or wrong. It just means that, like, I think there's a better chance of being right

when you've put it through a full vetting process.

John Deihl [00:42:18] So Amar, I know from our previous conversations that you're moderately

bullish on fixed income in general. So maybe when I talk to you about different segments of the

fixed income market, it'd be like asking like if somebody asked me which of my kids is my

favorite. But maybe while I don't want to choose that, I could tell you which one of my children

would be better behaved in uncertain times. And so maybe it's better phrasing it like that as you

scan the fixed income landscape, what assets within fixed income would you expect to be better

behaved if you would, if we really don't know what's happening going forward?

Amar Reganti [00:42:55] I don't want to be purely on the mitigation side, but given where yields

are in some parts of the credit market for individuals who are either a bit more risk seeking or

seeking to replace some of their their riskier equity allocations, there's a pretty interesting

opportunity for that as well in diversified credit.

John Deihl [00:43:15] So a mark to help our audience get a get inside of Amar's head. We actually

have a fun little exercise that we often asked our guests to participate in that we call The

Lightning Round. Now, as opposed to many of the questions we've asked you earlier about

technical issues within the fixed income market, I think you'll find these questions a little bit easier.

But what we want to do is really hear your top of mind, first impression, answers to the questions

that Julie and I are going to fire at you. So if you're ready to go, sit down, that's your you want to

start?

Julie Genjac [00:43:54] Absolutely. So, Amar, on a scale of 1 to 10, how good of a driver are you?

Amar Reganti [00:44:01] I'm a nine. I mean, I think I'm really good, but I'm a really careful driver.

And maybe that's because I work in fixed income, so. Yeah.

John Deihl [00:44:11] What? What what is your. What is your favorite holiday?

Amar Reganti [00:44:19] Ah. You know what? Actually, I think I think the Christmas time is like my

most favorite holiday, partly because, you know, my wife and I actually love going to the theater

and seeing The Nutcracker and A Christmas Carol and like everything that comes out during the

month of December. So I think we both really enjoy that time of year.

Julie Genjac [00:44:40] What's your favorite kind of cereal?

Amar Reganti [00:44:43] Oh, Lucky Charms.

John Deihl [00:44:45] Are you a morning person or a night owl?

Amar Reganti [00:44:49] A night owl? Definitely.

Julie Genjac [00:44:52] If you had your choice, would you choose cake or pie?

Amar Reganti [00:44:56] Pie. A way better expression of fruit.

John Deihl [00:45:06] What do you think is the best age to be?

Amar Reganti [00:45:10] Oh, wow. I'm going to say so, I'll say. In my early twenties, my first boss,

when I was a credit analyst, told me my mid-thirties would be the absolute best time. And I. I

enjoy everything. But there is something very special in your thirties when you're at this sort of

fulcrum point in your career where you feel more confident about the work you do. You feel more

established. But like, there's, there's, you know, you're still young enough that there is multiple

sort of ladders up. Right. So I think that's a really special time. And people, you know, it's easy to

forget. Do you think about your first job or do you think about, you know, where you are now? But

that those that mid-thirties years, I think is really it's extraordinary. It's I think it's it's a really

fascinating time.

Julie Genjac [00:45:59] In your opinion, what's the ideal outside temperature?

Amar Reganti [00:46:03] I would say a high fifties, low sixties, but clear. Right. So sort of that crisp

fall weather which we're beginning to enjoy here in New England now.

John Deihl [00:46:15] Would you describe yourself as an introvert or an extrovert?

Amar Reganti [00:46:21] I think I'm an extrovert. I, I like talking. I think one of the best parts of my

job is talking to people. And I know it's primarily about bond markets, but, you know, inevitably

you get to talk about a lot of other things, too.

Julie Genjac [00:46:35] All of our we can't tell you how much we appreciate it. Getting to know you

personally and professionally today on our Human Centric Investing podcast. And we hope all of

our listeners enjoyed our conversation today with the Morrigan, too. We're happy to announce

that Amara has been appointed to a newly created position as the fixed income strategist for

Hartford Funds. He'll be writing a monthly commentary to help financial professionals titled Fixed

Income Observations that you can access at Hartford Funds dot com slash Amar. Again thank

you so much for being with us today.

Amar Reganti [00:47:08] Thank you for having me.

Julie Genjac [00:47:11] Thanks for listening to the Hartford Buttons Human Centric Investing

podcast. If you'd like to tune in for more episodes, don't forget to subscribe wherever you get

your podcasts and follow us on LinkedIn, Twitter or YouTube.

John Deihl [00:47:26] And if you'd like to be a guest and share your best ideas for transforming

client relationships, email us. Guest booking at Hartford Funds dot com. We'd love to hear from

you.

Julie Genjac [00:47:36] Talk to you soon.

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*Net present value is the difference between the present value of cash inflows and the present value of cash

outflows over a period of time.