Fed paralysis, oil shock, and AI credit risk (with Romaine Bostick)

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Doubleline 8.5
Asset Manager $130.00B
Ken Shinoda 8.5

Fed paralysis, oil shock, and AI credit risk (with Romaine Bostick)

wti

The entire thesis of Fed paralysis is predicated on the oil price spike ($30) persisting due to the Middle East conflict lasting 'much longer than anticipated'. This implies a view that oil prices (WTI) remain elevated.

yields

The front end is pricing in the lack of cuts... It's hard to see the two-year rise meaningfully unless we think inflation is going to stay high for many many years. Front-end yields are up because the oil shock prevents Fed cuts. However, a sharp, sustained rise is constrained by longer-term inflation expectations still being sub-3%.

14 calls

no reliable edge (random outcomes)

12/10/2025 11:31:27 PM	medium term up	20 days later	+0.53%	+0.53%
12/10/2025 11:14:38 PM	medium term up	20 days later	+0.53%	+0.53%
10/29/2025 10:16:46 PM	medium term cautious down	20 days later	+0.98%	-0.49%
10/11/2025 12:16:44 AM	medium term cautious down	22 days later	+1.36%	-0.68%
9/22/2025 6:00:06 PM	long term sharp up	62 days later	-1.99%	-2.99%
9/18/2025 12:05:31 AM	short term cautious up	5 days later	+0.19%	+0.10%

Show all 6 yields results

Introduces Ken Shinoda to discuss the Fed's bind between a weakening labor market and completely uncertain inflation.

Romaine Bostick
Ken Shinoda

The Fed thought it could cut rates, but the oil price spike means they likely can't cut this year. Unless the Middle East conflict resolves, the Fed will be on hold.

Poor Powell, he thought he was in a good spot... with the spike in energy prices, it just doesn't seem like they could cut this year.
Ken Shinoda

The market initially tried to look through the energy shock, but it's lasting longer than anticipated. Equities have been surprisingly resilient, but more volatility is expected if it continues.
Asks what the rise in the two-year yield, now at its highest since the war began, tells us about trader psychology.

Romaine Bostick
Ken Shinoda

The front end of the yield curve is pricing in a lack of cuts. The two-year can't rise meaningfully unless inflation is seen staying high for many years, which longer-term breakevens don't suggest.

The front end is saying with inflation here, there's just no way they can drop rates unless energy prices come down meaningfully... It's hard to see the two-year rise meaningfully unless we think inflation is going to stay high for many many years.
Ken Shinoda

Even if Kevin Warsh becomes Fed Chair, he must fight the Fed's mandates. If inflation is high, he can't cut 100 bps. The Fed will be data-dependent.

Warsh comes in, I know he talks dovish, but he's got to fight the mandates of the Fed... if inflation's high, I just don't see how he could cut the 100 basis points some people are calling for.
Asks about comfort level with borrowing to fund AI capex, given low returns and high uncertainty.

Romaine Bostick
Ken Shinoda

AI capex borrowing is in early innings but will become a meaningful part of debt markets. DoubleLine is avoiding exposure until spreads compensate for the uncertainty.

Right now, the spread pickup for some of these transactions is minimal with a lot of uncertainty. So at DoubleLine we're avoiding as much of this exposure as we can until we get paid more for it.

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