The Fed Is Burning Money | Harley Bassman

Forward Guidance

Today Jack is joined by none other than the Convexity Maven himself, Harley Bassman, who shares why he is “wildly” bullish on mortgage-backed securities (MBS) even as the Federal Reserve is in the process of reducing its balance sheet via quantitative tightening (QT).

Bassman explains why long-term interest rates have shot up by so much and makes the case that, while he is confident that inflation will continue to run hot, the sell-off in long-duration Treasurys may not continue. Bassman goes on to explain the significance of the spike in interest rate volatility as measured by the MOVE Index, his creation, and shares several investment theses on municipal bonds and equity LEAPs. Filmed on Friday, June 3, 2022.

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Referenced In The Show:

“The Water Is Warm In The MBS Pool”: https://www.convexitymaven.com/wp-content/uploads/2022/05/Convexity-Maven-MBS-Pool.pdf

“Fire Insurance - Revisited”:

https://www.convexitymaven.com/wp-content/uploads/2022/01/Convexity-Maven-Fire-Insurance-Revisited.pdf

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Timestamps:

(00:00) Introduction

(01:18) Historic Bond Sell-Off

(09:48) Credit Vol

(17:14) Is There A Powell Put On Credit?

(21:56) Is Quantitative Tightening (QT) Money Burning?

(25:05) Bit.com Ad

(33:49) Yield Curve Inversion

(41:26) Outlook on Mortgage-Backed Securities (MBS)

(44:59) Pre-Payment and Extension Risk

(51:42) Will MBS Convexity Humble the Fed?

(1:00:08) Bassman's Highest Conviction View

(1:03:38) Municipal Bonds

(1:04:42) Longer-Dated Calls on Equity Indices

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Disclaimer: Nothing discussed on Forward Guidance should be considered as investment advice. Please always do your own research & speak to a financial advisor before thinking about, thinking about putting your money into these crazy markets.