Alpha Exchange · Oct 1, 2026 · 50m · 34m saved
With Brij Khurana, Fixed Income Portfolio Manager at Wellington Management
Bond markets are pricing close to 100 basis points of Federal Reserve rate hikes, taking the policy rate toward 5%, and Brij Khurana says the world's central banks are tightening together just as an oil shock eats into real wages.
The textbook view is that low rates spur business investment and that the Fed's bond buying pushes yields down. Khurana, who runs an unconstrained bond fund at Wellington Management, says the last 25 years show neither: investment ran on its own cycle, and each big round of bond buying sent yields higher.
"Whenever they did the excessive amount of QE, yields would rise." — Brij Khurana
Khurana has traded markets for 25 years and has spent the last 10 at Wellington, where his fund can move between government bonds, corporate credit and currencies anywhere in the world. A month before this interview on Alpha Exchange he argued in the Financial Times that high asset prices, not low interest rates, are now driving US inflation.
The full interview is covered here so you can skip it. 50 minutes of audio, 16 minutes of reading.
Here are the 17 arguments that matter.
Key Takeaways
Low interest rates did not drive business investment over the last 25 years, Khurana said
AI spending is booming even though rates are high
Large rounds of quantitative easing pushed bond yields up, because investors feared the debt would be monetized
US inflation now comes mostly from the wealth effect, not the labor market
Baby boomers hold 50–60% of US wealth, and about 70–75% of their assets is in stocks
Tight policy and an oil shock are hitting at the same time, the two classic causes of recession
The market's long-run rate (the 10-year rate starting 10 years out) is about 100 basis points too high against his growth estimate
AI borrowing makes bonds a weaker hedge against a slowdown, which pushes yields higher
Some chip-financing deals look circular, reminding him of the period before the 2008 crisis
His three favorites: inflation-linked bonds, high-quality foreign government bonds, and emerging-market local bonds
US break-even inflation sits at 2.3% even with current inflation near 4%
1. A Go-Anywhere Bond Fund
Khurana runs an unconstrained fund that can invest in interest rates, corporate credit or currencies. Ten years ago, when he joined Wellington, most of his time went to credit. Now it goes to government bond markets in the major developed economies, which he says have been "extraordinarily dislocated."
The drawdown in bonds over the last few years ranks among the worst on record
"The drawdown in fixed income has been one of the worst in history." — Brij Khurana
The host recalled starting his career in 1991, when the 10-year Treasury yielded 8.25% with inflation around 4%. Khurana said the 5-year real yield, the return after inflation on inflation-protected Treasuries, had risen by about 100 basis points over six months, then corrected himself to 130, one of the largest six-month increases on record. When the 5-year inflation-protected Treasury was first issued in the mid-1990s, its real yield was 3.5%, so real yields could go higher still.
