One thing you have to love about the world of finance is all the acronyms! It can be hard to keep track of them all. A recent headline made me laugh when I read it – “Forget TINA, get reacquainted with CINDY.” No, the article was not talking about long lost friends. It was referring to changes in fixed income markets in 2022
TINA stands for “There is No Alternative.” This phrase was originally credited to the former Prime Minister of the United Kingdom Margaret Thatcher as a baseline justification for capitalism. However, in recent years, the term has been widely used in financial markets.
For most of the past decade, central banks around the world kept interest rates near zero (and sometimes, even negative) – for many valid and justifiable reasons. However, with such low rates (and the inevitable fact that the rates would one day rise, thereby eroding principal value), investors rightfully believed that you had to rely heavily on equities to generate returns. With no contribution from interest rates/fixed income, there was no choice (or alternative) to owning equities. Hence, TINA was the star of the show!
Fast forward to 2022. A LOT has changed in the past six months. Follow-on effects from COVID and the resulting monetary and fiscal responses and supply chain disruptions led to astonishing levels of inflation and the need for swift action from the Federal Reserve. Interest rates have risen as part of this response and just like that, there is now in fact an alternative. TINA has left and there is a new start in town, CINDY, or “Credit is Now Delivering Yield”
As noted above, there has been a marked move both in interest rates as well as spread (the difference between the prevailing rate and the risk free rate) thus far in 2022. This combination of higher underlying Treasury yields and wider spreads results in attainable yields across maturities that are markedly higher than any time in the last two years and in some cases, in the past 10+ years.
As with any asset class or security, there are countless nuances in the fixed income market and many factors that need to be considered including duration and credit quality. However, one thing is clear – the potential returns for fixed income (as well as cash reserves) are far more compelling now than in the recent past and are likely to have a meaningful contribution to balanced portfolio returns over the coming months.
Note: All commentary above is as of the date of this post and is for education and informational purposes only. Windermere and its principals do not intend for this to serve as investment advice and are not responsible for any actions taken based on this article. Consult your financial advisor before taking any actions as it relates to your own investment portfolio
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