Sherman Says: Show Me the Math on AI

In the third installment of DoubleLine's Sherman Says, Deputy CIO Jeffrey Sherman and Strategist Ryan Kimmel, moderated by Relationship Manager Nick Dalgety, discuss a bond market that has been repricing since the Iran war began in late February. Sherman argues the market has already priced in the Federal Reserve's next moves and that the Fed probably needs about three more rate hikes to catch up, with energy driving the story and yields more correlated to fuel prices than at any point since 2007. The conversation moves to credit, where spreads are described as tight for a reason, and to roughly $580 billion in AI-related issuance this year, before closing with audience questions on TIPS, mo

1. Sherman says the bond market has already priced in the Fed's next moves and that the agency probably needs about three more rate hikes to catch up.
2. Energy is driving the story, with yields and fuel prices more correlated than at any point since 2007; the Fed 'can't produce a barrel of oil,' he notes.
3. Spreads are tight for a reason and the bond market is no longer ignoring risk, with tech names and the weakest parts of high yield and loans bearing the brunt of roughly $580 billion in AI-related issuance this year.
4. Asked whether the AI debt buildout works mathematically, Sherman says 'It has a way out. I just can't pencil it out'; if forced to buy one thing, he says a five-year U.S. Treasury, and he still likes high-quality, shorter-duration credit.