Inflation and Stagflation Hedge (with Paul Allen, Sherry)

explicit

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Federated Hermes 9.4
Asset Manager $704.00B
Karen Manach 7.5

Inflation and Stagflation Hedge (with Paul Allen, Sherry)

yields

An end to the conflict would make the Treasury market rally with yields going down. Her reasoning is conditional on a conflict resolution. She explicitly identifies the two-year Treasury, up over 50 bps, as an area where 'nice money could be made' if peace occurs, indicating a directional view for yields to fall in that scenario.

3 calls

slightly better than random

10/21/2025 9:54:28 AM	short term cautious down	5 days later	+1.11%	-0.56%

What's your inflation outlook globally and for the US? It's looking somewhat bleak.

Paul Allen
Karen Manach

It's a bleak picture for inflation, incredibly difficult. First from pandemic supply chains, then tariffs, now a scorching push from energy.

We can endure this inflation if it's short-run. If it continues for an extended period, it will make inflation higher and create a very difficult condition for markets and consumers.
Could this all be transitory? Fed's Stephen Myron sees inflation coming back to 2% in 12 months.

Paul Allen
Karen Manach

'Transitory' is an awfully bad word that hasn't ever proven true. The math for a path to 2% requires a real cooling in services inflation, which is held up by annualized cost increases like insurance.

If there's a short-lived conflict and resolution, and energy prices come down closer to pre-war levels (not to $100), you can do the math to get closer to 2%, but it will take effort and conflict resolution.
If growth stalls and stagflation risks grow, what assets could hedge this environment?

Sherry
Karen Manach

Stagflation is a very difficult condition. The market has priced in inflation aggressively, perhaps too much. To hedge, you want to use income. Investment-grade corporate bonds are a nice way to secure that income and act as a fixed income hedge.

She notes the market was ahead of itself expecting 2.4 Fed cuts, and now pricing in a hike might be going too far.
Treasury yields track oil prices. What are your scenarios for how Treasury markets could move?

Sherry
Karen Manach

An end to the conflict would make the Treasury market rally with yields going down. The short end of the curve, the two-year, is up over 50 basis points.

You can see where nice money could be made if we get a resolution. Treasuries know how to price, and a rally would begin as Treasury prices correct themselves. There's a really nice play in the two-year part of the curve.

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