Investors have been flocking to strange corners of the fixed income market as pressures are rising from both the Fed and inflation. The latest place investors are finding relief is floating rate investment-grade corporate debt. Corporations were reluctant to create in the early stages of the pandemic to supply floating rate debt with yields near zero on government debt. However, there is a huge demand for floating-rate debt today, and large investment banks like JPMorgan, Morgan Stanley and Citigroup Inc. are all jumping into the investment-grade bond market. Floating rate risk allows investors to mitigate duration risk which with rate hikes pending is a potential threat.

Finsum: This could be just the start of the trend or there could be a lot more to come, but look for the less used avenues of the debt market to start to spark with fixed income in the place it's in.

Oil prices have been rising about as fast as any point in recent time and with WTI prices pushing close to $100 a barrel, President Biden has frozen a whole selection of new oil leases in order to accommodate green energy policies. This all is imposed based on newly tagged costs to the ‘social cost’ of carbon emissions, attempting to quantify the costs of climate change. However, there is lots of supply price pressure due to both OPEC+ and the Russia-Ukraine tensions.

Finsum: The U.S. needs oil supply now as much as ever, companies are reopening shale drilling sites that were not thought profitable because oil couldn’t hit $100 a barrel.

Goldman Sachs lowered their most recent median projection for equities, putting the year-end target for the S&P 500 at 4,900. It's clear the markets hadn’t accurately priced in the Ukraine risk which could be worse in Goldman’s eyes than the 2014 Crimea annexation. Additionally, Goldman warned that if inflation continues to be worse than their expectations and faster rate hikes are needed the S&P 500 could decline by up to 12% to 3,900 by end of 2022, and if a recession occurs when the trough is lower yet. The best plays are in industrials and consumer discretionary, but still, energy leads the way.

Finsum: In lockstep with Goldman, a recession is a worst-case scenario. The TIPs market says inflation expectations are still moderate, so they shouldn’t overact to inflation.

Many investors have become accustomed to the rising equity prices that have been pumped up by an ultra-low rate environment and are overexposed to too much risk, at least that's the opinion of 4/5ths of investment professionals surveyed by Natixis Investment managers. Over 3/4rs of professionals surveyed said that inflation and interest rates were the biggest risks to portfolios moving forward. The way out of that risk exposure is to have more active management which can thrive when the risks are apparent. The other solution is model portfolios which have been built to target specific risks like inflation or interest rate risk. Finally, advisors are being begged to add crypto to portfolios in a high weight, and are unsure of how this fits into portfolios.

Finsum: Regular volatility or supply-side shocks are almost impossible to predict, but when the risks are very apparent investors should take the necessary precautions.

Many investors are fretting over the rising bond yields which are sending their prices tumbling, but this could just be the tip of the iceberg. The aggregate bond index AGG has already fallen 3.9% and that's with the critical 10-year T-bill only rising to a 2% yield. If the 10-year hikes all the way up to its high of 3.25% in 2018 that could be a disaster. With inflation at a 40-year high that's a real possibility and any yield you are getting is all eaten away at. However, if inflation is temporary (caused by supply chains) or Fed pulls breaks fast enough then yields might be maxing out, and bond prices could turn around.

Finsum: Inflation expectations are remarkably low which means that investors are convinced either the Fed will credibly bring inflation down or as supply chains loosen that will bring inflation down. Markets are saying that bond risk is priced in.