Charles Schwab Chief Fixed Income Strategist Kathy Jones Talks Treasuries and Fed Interest Rates

Summary

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Bloomberg Talks: Charles Schwab Chief Fixed Income Strategist Kathy Jones Talks Treasuries and Fed Interest Rates

Date: March 20, 2026
Host: Bloomberg
Guests: Kathy Jones (Chief Fixed Income Strategist, Schwab Center for Financial Research), George (Analyst)

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Episode Overview

This episode features a timely and insightful discussion about recent dramatic shifts in fixed income markets, driven by geopolitical risk, energy shocks, and shifting Federal Reserve policy expectations. Kathy Jones, on her final broadcast before retirement, shares her seasoned perspective on whether the repricing of interest rate expectations is justified, how investors should navigate steepening or flattening yield curves, and the risks (and opportunities) in the current environment. George offers additional analysis, particularly focused on inflation expectations, stagflation concerns, and portfolio positioning for bond investors.

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Key Discussion Points & Insights

1. Shifting Rate Expectations: Is the Market Overreacting?

• Kathy Jones explains that the market’s decision to price in the possibility of Fed rate hikes (instead of expected cuts) is “appropriate” given the unanticipated persistence of current shocks (oil price surges, inflation risks). However, she clarifies that she does not anticipate immediate Fed hikes, suggesting a neutral stance is more realistic at this stage.

  • Quote: “I think it’s more appropriate to go from building in one or two rate cuts to being at least neutral at this stage.” (00:59)

• George adds that markets habitually overreact on the front end of the curve, rushing to price in policy moves before the Fed acts or data supports such action. He emphasizes the Fed is "on hold," awaiting deeper data.

  • Quote: “The market gets very excited very quickly, rushes to price in rapid moves by the Fed and then the Fed has to...move much more slowly with the data.” (01:51)

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2. Yield Curve Dynamics: Flattening vs. Steepening

• The host notes pre-war consensus trades favored a steepening yield curve, but recent days have seen a rapid flattening (210 spread narrowing).
• Kathy Jones explains this flattening shows the short end "rushing" to price out rate cuts and adjust to the new inflation outlook. She cautions there’s still a long-term trend towards steepening but a scenario involving further inflation and growth slowdown could continue to flatten curves.
  • Quote: “Behind the inflation push is probably a growth slowdown. So I think the market’s starting to reflect that right now, but it’ll probably play out these scenarios a dozen times before we actually know what the end game is.” (03:39)

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3. Portfolio Positioning: Where’s the Value Now?

• George sees emerging value in short-to-intermediate durations (2-5 year part of the curve) as rate hike fears push front-end yields higher. He advises “grab the yield, play the carry, wait for the trade” and look to extend duration if an economic slowdown materializes.
  • Quote: “Short to intermediate duration looks pretty attractive....Once we see maybe a little bit of economic slowdown, that’s when you extend out the curve.” (04:26)

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4. Risks of Drawing Parallels with the 1970s or 2008

• The host asks about the risk of investors referencing extreme historical analogies (like the 1970s for inflation or 2008 for credit crises).
• Kathy Jones says this “creates risk of overshooting, but also creates some opportunity. Right. When the markets overshoot, that’s when you get some good valuations to...grab onto.” She highlights uncertainty due to the political nature of the current crisis, but focuses on the likelihood that growth will slow—and ultimately, so will rates and inflation.
  • Quote: “Higher energy prices mean capital investment will slow down, probably hiring will slow down, GDP growth comes down, and eventually that does mean lower rates and lower inflation. It’s just how we get there.” (05:36)

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5. Stagflation: Is It a Real Risk?

• Asked about mounting stagflation fears, George says the risks are higher. Still, with strong starting fundamentals—especially in investment grade corporates and munis—there are "safe harbors" where investors can weather volatility and still “clip your coupon.”
  • Quote: “There’s a lot of safety harbors in the market where you can harbor risk, weather the storm and kind of clip your coupon as you kind of work your way through this.” (06:33)

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6. Kathy’s Final Lesson: Risk Management Above All

• On her last TV appearance, Kathy Jones shares her top investing lesson from 50 years in markets:
  • Quote: “Managing risk is the most important thing you can do in investing. Always know or try to game out at least the risk you’re taking before you enter that investment. Whether it’s liquidity, whether it’s volatility, whatever it is, manage the risk and the rest can take care of itself.” (07:38)

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Notable Quotes & Memorable Moments

• [00:59] Kathy Jones: “I think it’s more appropriate to go from building in one or two rate cuts to being at least neutral at this stage.”
• [01:51] George: “The market gets very excited very quickly, rushes to price in rapid moves by the Fed and then the Fed has to...move much more slowly with the data.”
• [03:39] Kathy Jones: “Behind the inflation push is probably a growth slowdown....it’ll probably play out these scenarios a dozen times before we actually know what the end game is.”
• [04:26] George: “Short to intermediate duration looks pretty attractive....Once we see maybe a little bit of economic slowdown, that’s when you extend out the curve.”
• [05:36] Kathy Jones: “Higher energy prices mean capital investment will slow down, probably hiring will slow down...eventually that does mean lower rates and lower inflation. It’s just how we get there.”
• [06:33] George: “There’s a lot of safety harbors in the market where you can harbor risk, weather the storm and kind of clip your coupon as you kind of work your way through this.”
• [07:38] Kathy Jones: “Managing risk is the most important thing you can do in investing...manage the risk and the rest can take care of itself.”

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Timestamps for Important Segments

• 00:33 – Opening, introduction of Kathy Jones
• 00:59 – Kathy Jones on market repricing and Fed expectations
• 01:51 – George on market overreactions and inflation expectations
• 03:18 – Host on yield curve dynamics; Kathy on flattening risks
• 04:21 – George on curve positioning and preferred maturities
• 05:16 – Host on extreme historical references; Kathy on opportunity in volatility
• 06:29 – Stagflation risk discussion
• 07:22 – Kathy Jones shares career-spanning investing wisdom

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Conclusion

This episode provided rich, candid, and experience-backed insights into a rapidly shifting fixed income landscape. Both Kathy Jones and George emphasized the importance of risk management, watching for overreactions (and hidden opportunities) in unpredictable markets, and the unique challenges posed by political and economic uncertainty, all while keeping a cool head and a long-term view. Kathy’s parting advice resonates for investors of any era: manage the risk first—rewards will follow.

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Transcript

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Bloomberg Audio

[Host/Interviewer]

Studios Podcasts, Radio news. Please welcome back Kathy Jones, Chief Fixed Income Strategist for the Schwab center for Financial Research. Kathy, let me start with you. I want to pick up on that chart that Mike just showed us. That idea that traders have not only priced out rate cuts for the rest of this year, but they have priced in a rate hike or the odds of a rate hike this year as well. Is this dramatic repricing appropriate or is it overdone?

[Kathy Jones]

You know, I think it's appropriate because coming into this, the idea was it was going to be a short term event and we were going to pass right through it. Now we're into what, the fourth week I think end of the third week, I believe. Okay, so we're approaching the fourth week and that's significantly longer and it's gotten significantly more escalated than had been anticipated. So we're seeing the energy price shock and sort of between the rise in energy prices and the slowdown in growth that will come from that is the inflation hit. And so I think the market is reflecting that the inflation hit is coming and it needs to deal with that. I'm not sure that it's accurate that the Fed is going to hike rates anytime soon, but I think it's more appropriate to go from building in one or two rate cuts to being at least neutral at this stage.

[Host/Interviewer]

George, what do you think?

[George]

You know, I think that the, you know, the market has a tendency to overshoot at the very front end of the curve. I mean I just listening to what, what Mike said and what Kath he said, as well as some of the things Powell said earlier this week. The Fed's kind of on hold and I think they said they very clearly they're on hold. They're going to wait and see. They cannot move proactively unless something really, really dramatic happens. But as it stands now, they're kind of stuck in neutral now. The market's kind of rushed to price rate hikes, which seems a little premature because if we look a little further out, the Curve. If you look at break even rates for inflation 1 year out rates, the inflation looks like it's going up over the next 12 months. But if we look further out, say 10 years, the market still has inflation pegged at around a little under 2.4%. So long term inflation expectations remain pretty firmly anchored. But it's those front end, you know, kind of worries that are getting the market very anxious. And when we looked at rate cut expectations earlier last year and even the prior year, the market gets very excited very quickly, rushes to price in rapid moves by the Fed and then the Fed has to slow, pedal and kind of move much more slowly with the data. As the data unfolds, we don't see them doing anything for at least the next three plus months or maybe even longer.

[Host/Interviewer]

So one of the consensus trades before the war began was the steepening yield curve. And this week we've seen the 210 spread narrow sharply to around 42 basis points. You would think that the inflationary impact of rising oil would lead to curve steepening. What does this rapid flattening. Kathy, tell us about what the market sees as the key risks facing the Fed?

[Kathy Jones]

Yeah, I think this is reflecting that rush at the short end to price in a shift in rate expectations, at least take out the rate cuts on the part of the Fed, as George indicated. So I think the long term trend is probably still towards steepening. But there is a, there is a chance in one scenario and there's so many scenarios to play out, but one scenario is this continues. Inflation becomes a big concern. The Fed does have to tighten and growth slows down. So we know that behind the inflation push is probably a growth slowdown. So I think the market's starting to reflect that right now. But it'll probably play out these scenarios a dozen times before we actually know, you know, what the end game is here.

[Host/Interviewer]

George, as we wait for the end game, what do you want to hold? Where do you want to be on the curve?

[George]

Yeah, as we pointed out earlier, you know, kind of the big move in the front end is, is where it really where the action's at and the value is starting to emerge, you know, both in the short to intermediate part of the curve, the three really the two to five year part of the curve is starting to look fairly attractive as the market gets excited and starts to price in rate cuts, I'm sorry, rate hikes. And you know, as Kathy said, as the, as the long end comes down, higher rates and higher oil prices do ultimately become a tax on growth. And the Long end is starting to sniff that out, but we're not quite there yet. And so, you know, right now, short to intermediate duration looks pretty attractive. You know, kind of grab the yield, play the carry, wait for the trade. Once we see maybe a little bit of economic slowdown, that's when you extend out the curve.

[Host/Interviewer]

When investors fret about oil and inflation, the comparison is always the 1970s. That's kind of where they go to and when they fear credit blow ups, the comparison is 2008. Kathy, not everything is so extreme, though. I mean, those are pretty extreme examples. What kind of risk does that create, that, that tendency to go to the most extreme example?

[Kathy Jones]

Well, it creates risk of overshooting, but also creates some opportunity. Right. When the markets overshoot, that's when you get some good valuations to just to grab onto. But I do think, particularly when it comes to something like this, because it's a war and it's politically driven, there's so much uncertainty about how it turns out. Right. This isn't something that we can kind of model out easily. We're modeling many scenarios now. And so, yeah, markets are going to overshoot in all directions. But I think the, the end of it for me is that I'm focusing now on what's the opportunity given the likelihood of a growth slowdown. You know, higher energy prices mean capital investment will slow down, probably hiring will slow down, GDP growth comes down, and eventually that does mean lower rates and lower inflation. It's just how we get there. That's the question mark.

[Host/Interviewer]

George, do you think it's appropriate to talk about stagflation late?

[George]

Well, I think there's risks that stagflation risks have clearly gone up. You know, inflation pressures are mounting and there's some concern about growth. And what we think is sort of the starting point of where the bond market sits today is really important. And so when we look at kind of the opportunity set that bond investors face as yields move up, that provides a lot of cushion to weather this, this volatility. And then when we look at the underlying fundamentals, the investment grade corporate bond market is still pretty good shape. The iritized part of markets are in pretty good shape. And most importantly, municipal bonds are in very good shape. So there's a lot of safety harbors in the market where you can harbor risk, weather the storm and kind of clip your coupon as you kind of work your way through this.

[Host/Interviewer]

Kathy, final question to you because this is your last appearance on Real Yield on television before you retire after 50 years in the market initially. As a runner at the Chicago Board of Trade, what is this single most relevant lesson that you've learned the hard way about investing?

[Kathy Jones]

Well, managing risk is the most important thing you can do in investing. Always know or try to game out at least the risk you're taking before you enter that investment. Whether it's liquidity, whether it's volatility, whatever it is, manage the risk and the rest can take care of itself.

[Host/Interviewer]

And that's exactly what's happening right now in March of 2026. Kathy, thank you so much. Kathy Jones of Schwab. Congratulations to you than following your illustrious career and George bore of offspring. Really appreciate both of you joining Support

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