Portfolio manager wishes bonds stopped trading like stocks

Recession fears and potential economic headwinds amp back up while the Treasury bond market has taken off. The 10-year Treasury yield peaked at 5% last Thursday, having since retreated from the rate benchmark. With higher for longer interest rates, and an economy that has not slowed fast enough, Treasury bonds continue to be a safe investment.

Gradient Investments Senior Portfolio Manager Jeremy Bryan joins Yahoo Finance to discuss his views on the current status of the bond market and on what investors need to pay attention to with their investments.

"The very nice part about the pain we've had to take in the bond markets to get here is that you can dial down your risk, still have exposure to the markets overall, but dial down your risk in the penalty isn't going to be as severe as it used to be," Bryan says on risk management.

Click here to watch the full interview on the Yahoo Finance YouTube page or you can watch this full episode of Yahoo Finance Live here.

Video Transcript

- Good to see you, Jeremy. So what do you do right here? Are you looking for any kind of stability in yields? And is that what we need to unlock more consistent gains in stocks from here?

JEREMY BRYAN: I'd love for bonds to stop trading like stocks. [LAUGHS] We historically, over longer periods of time, don't get that. I mean, the 10-year does not often go from 375 to 499 in a very short period of time. So yes, stabilization-- I think stabilization is probably your best case scenario for a rally in Q4.

I think if we start to see stabilization in rates in what's happening in the earnings picture right now, which is OK, still beating, still coming in, there's things-- things aren't falling apart, I think you get both of those. I think you have a good stage for a rally in Q4. So yes, stabilization to a slight decline in the long-term 10-year rate would be a phenomenal backdrop for stocks I think.

- And Jeremy, are you in that higher for longer camp? Is that what you see in the months, quarters ahead?

JEREMY BRYAN: Definitely for probably the remainder of the year. We're probably going to be right where we are. That's what the feds communicated, is they're in no particular rush to be cutting. So I don't see a reason for that to do so.

Now, again, the massive acceleration in the long end is a little bit of a different story. And the effect of 10 years going up this fast usually doesn't continue up and up and up and higher. Could it happen? Sure, but the call of 7%, 8% rates I think is a bit of a stretch in my imagination. It's possible and certainly you have to understand that that's possible.

But I think it's much more a trend of a stabilization in the long term rates and a higher for longer, maybe there for a little while. But I think the most likely rate is probably currently where we are to lower.

So that's our thought right now with regard to how we're bond positioning as well in the effect of if we get that, we think there's a certain amount of stocks that will do well. I think the general markets will do well and bond positioning as a result of that. Not extending duration too far, but thinking about some duration in the portfolio.

- And so-- and more broadly, and I understand that what you're talking about speaks to this question, but how are you thinking about risk right now and what your risk appetite is in this environment?

JEREMY BRYAN: The very nice part about the pain that we've had to take in the bond markets to get here is that you can dial down your risk, still have exposure to the markets overall. But dial down your risk, and the penalty isn't as severe as it used to be.

Two years ago, if you said I'm going to dial down my risk, I'm basically getting zero return. Now, I can say, I'm going to dial down my risk, still get 4% or 5% from a cash holding. There's nothing wrong with having a piece of that there.

But what I'm saying is that you don't issue your stock portfolios that, again, over longer periods of time-- I mean, 60% of the time over the last 90 years, the stock market has been up over 10%. So even though you're getting 4% and 5% in cash, don't leave your stocks alone, which can have significant rallies. You want to have a piece of both, and that's absolutely fine.