2021 Year End Outlook & Update

All in all, 2021 was a reasonable year. While the bond indices didn’t show much strength, our hard work paid off and we had a good year. As we look into 2022, we expect another challenging year, but we are prepared for it. We are positioning our portfolios to take advantage of the opportunities and avoid potential problems.

We have created a quick, focused review and outlook at the link below. For those who want the really quick version, migrate to quality, avoid the coming volatility and have a great 2022!

Happy Holidays! We wish you all the best in the New Year!

Peter Baden, CFA, Chief Investment Officer

On the Horizon

  • Vaccine distribution and variants present challenges: Winter is Coming
  • Inflation is here and the Fed is on the job
  • Will rising short term rates and high inflation translate to higher long-term rates?
  • Will an activist Fed cause a recession?
  • Can we dismiss Modern Monetary Theory now?
  • Perspectives: High Inflation

Check out our year end outlook and update for insights and answers to the above questions.

Final Thoughts

  • 2021 showed continued recovery, but stoking consumer demand without a healthy supply chain caused inflation to spike
  • The Fed is signally they are on the job and the market believes it
  • Growth should continue in 2022, but the possibility of policy mistakes cloud 2H2022 and 2023
  • Municipal bonds continue to have strong demand and new issue supply should moderate
  • IG Credit spreads are widening from historic lows, focus on improving credits, watch out for companies financial engineering stock returns at the expense of bond holders
  • HY spreads are widening. Higher short-term interest rates is not good news for leveraged borrowers


The U 3 unemployment rate tracks the number of unemployed persons as a percentage of the labor force (the total number of employed plus unemployed
Gross domestic product ( is the total monetary or market value of all the finished goods and services produced within a country’s borders in a specific time period As a broad measure of overall domestic production, it functions as a comprehensive scorecard of a given country’s economic health This is seasonally in the chart shown Seasonal adjustment is a statistical technique designed to even out periodic swings in statistics or movements in supply and demand related to changing seasons Seasonal adjustments provide a clearer view of nonseasonal changes in data that would otherwise be overshadowed by the seasonal differences.

Year over year ( is a method of evaluating two or more measured events to compare the results at one period with those of a comparable period on an annualized basis.

US CPI Urban Consumers Less Food Energy YoY NSA Consumer prices ( are a measure of prices paid by consumers for a market basket of consumer goods and services The yearly (or monthly) growth rates represent the inflation rate.
Core PCE Price Index is a measure of the prices that people living in the United States, or those buying on their behalf, pay for goods and services.
The Federal Funds Rate is the target interest rate set by the Federal Open Market Committee ( at which commercial banks borrow and lend their excess reserves to each other overnight.
The 5 year breakeven inflation rate is the difference between the 5 Year Treasury Constant Maturity Rate and the yield on an inflation protected security with 5 years remaining to maturity.
Yield to Maturity describes the rate of return an investor will receive if a long term, interest bearing security, such as a bond, is held to its maturity date.
A yield spread is the difference between yields on differing debt instruments of varying maturities, calculated by deducting the yield of one instrument from the other.
Tenor refers to the length of time remaining before a financial contract expires.
The FedWatch tool calculates unconditional probabilities of Federal Open Market Committee ( meeting outcomes given the trading levels of the contracts to generate a binary probability tree.
See: https://www.cmegroup.com/education/demos-and-tutorials/fed-funds-futures-probability-tree-calculator.html

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