Name: Are Interest Rates About To Spike? Key Risk Bond Market Signalling | Kathy Jones
Uploaded: 2025-02-14T16:59:34+00:00
Duration: 2021 s

Speakers

Kathy Jones — Chief Strategist, Charles Schwab

Summary

Kathy Jones of Charles Schwab discusses the bond market outlook, focusing on inflation risks from tariffs, immigration changes, and tax cuts, and the risk that Treasury yields remain high or move higher. She favors high-quality fixed income, expects the dollar to stay strong, sees a tactical long-yen opportunity, and anticipates further yield-curve steepening. She is wary of high-yield credit at tight spreads and cautious on weak equities.

Kathy Jones expects Treasury yields to be biased higher, with the 10-year possibly retesting 5% and 5.25% not out of the question.
She sees sticky inflation risks from tariffs, immigration restrictions, and tax-cut-driven demand, while the economy remains resilient and deficits rise.
The dollar is expected to stay strong on tariff effects, US economic outperformance, and wide interest-rate differentials.
She views a long-yen-versus-dollar trade as a tactical possibility because of a more hawkish BOJ and reduced carry-trade appeal.
She expects the Treasury yield curve to keep steepening and sees high-yield credit as expensive and vulnerable to tariff-related spread widening.
In fixed income, she prefers core bonds, investment-grade corporates, TIPS, and municipal bonds while limiting riskier segments such as high yield and preferred securities.
On equities, she is cautious because the equity risk premium is below bond yields and favors companies with strong cash flows and earnings power.

Ideas

Kathy Jones Chief Strategist, Charles Schwab 4:11

Treasury yields biased higher, retest 5%.

Kathy expects the risks to Treasury yields to be tilted higher because tariffs, immigration changes, and tax cuts can add to inflation and demand while the economy is still resilient and deficits are rising. She specifically sees a risk that the 10-year Treasury yield retests 5%, and later says 5.25% is not out of the question.

Kathy Jones Chief Strategist, Charles Schwab 11:10

Dollar stays strong on tariffs, rate gaps.

Tariffs tend to strengthen the currency of the country imposing them, and the dollar is also supported by a stronger US economy and wider interest-rate differentials because the Fed is likely to cut less than many other central banks. She says the dollar should stay strong.

Kathy Jones Chief Strategist, Charles Schwab 14:10

Tactical long yen versus dollar.

The Bank of Japan is more hawkish and Japanese yields are at a 14-year high, which makes the carry trade less attractive and may encourage Japanese investors to repatriate foreign investments. She views long yen versus the dollar as a trading possibility, though not a long-term position.

Kathy Jones Chief Strategist, Charles Schwab 18:52

Yield curve steepening remains in playbook.

She expects the general trend of the yield curve to keep steepening unless there is sudden evidence of slower growth or falling inflation, and says steepening remains in their playbook.

Kathy Jones Chief Strategist, Charles Schwab 29:00

Investment grade corporates offer reliable yield.

Although investment-grade spreads are low, credit quality is good, corporate profits are at all-time highs, and cash flows are strong, so investment-grade corporates are a place to look for more yield while staying up in credit quality.

Kathy Jones Chief Strategist, Charles Schwab 29:03

High yield priced for perfection, limit.

High-yield spreads are very low and priced for perfection; she is wary and concerned at these levels, sees risk of widening if tariffs hit certain industries, and recommends limiting allocation.

Kathy Jones Chief Strategist, Charles Schwab 29:26

TIPS real yields attractive around 2.5%.

TIPS real yields are attractive around 2.5%, so she would look there for higher real yields.

Kathy Jones Chief Strategist, Charles Schwab 30:23

Bulk allocation to core bonds.

She prefers the bulk of a fixed-income portfolio in core, high-quality bonds—Treasuries, investment-grade corporates, and munis where appropriate—while limiting riskier segments to a smaller 20-25% allocation.

Kathy Jones Chief Strategist, Charles Schwab 30:32

Municipal after-tax yields look attractive.

If municipal bonds are suitable for an investor, their after-tax yields are pretty attractive right now, making them a core fixed-income allocation option.

Kathy Jones Chief Strategist, Charles Schwab 30:45

Limit preferreds in risk bucket.

Preferred securities are part of the riskier segment that is less liquid and more volatile, though they offer higher yields; she would limit that riskier allocation to about 20-25% of a fixed-income portfolio.

Kathy Jones Chief Strategist, Charles Schwab 31:17

Favor quality equities over weak companies.

The equity risk premium is now below the bond yield, so starting price matters; she is cautious on weaker equities and favors companies with strong cash flows and earnings power that can withstand an economic downturn.

Are Interest Rates About To Spike? Key Risk Bond Market Signalling | Kathy Jones

Summary

Ideas

Up Next