2023 – The Year of the T Bill
We believe that wage and commodity inflation will remain sticky, and the Fed will continue to tighten rates to at least 5.25%.
The curve is steeply inverted, and the markets believe that the Fed will start easing in the second half the year (we are not so sure). Six moth T Bills yield close to 5%, while 10-year notes only yield 3.5%. Given that wage inflation will likely force the Fed to keep rates higher for longer, we do not believe our clients should chase total return by adding duration risk.
We are happy to buy T Bills at 5% and have a hunch they could be the best returning asset in most portfolios in 2023…also the safest!
