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Fed signals it will follow bond market, manager says it backfired

Thornburg’s Christian Hoffmann said core bonds are down 2.5% over five years, and inflation-adjusted yields are above 3%.

Reported · Written up by our desk · Fund Industry

ETF Trends reports Federal Reserve Chair Kevin Warsh said the Fed would take its cues from the bond market, but a Thornburg Investment Management fixed income manager said that messaging backfired quickly.

During a webcast, Thornburg head of fixed income Christian Hoffmann said markets reacted rapidly after Warsh set that approach, and he warned the Fed is nearing a “fork in the road” where either too many hikes or stopping early could lead to a policy error or credibility concerns.

According to the outlet, Warsh has delivered the Fed’s first rate hike since 2023, and markets now expect three to four additional hikes after earlier debate over potential cuts.

ETF Trends also cited Thornburg data showing core bonds have fallen 2.5% over the past five years, while inflation-adjusted yields are above 3%, a level Hoffmann said investors have not seen in over 20 years.

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