Shock after shock: How constant volatility impacts fixed income markets

Thomas Mucha, Geopolitical Strategist
Amar Reganti, Fixed Income Strategist
2022-08-17T12:00:00-04:00  | S1:E11  | 34:20

The views expressed are those of the speaker(s) and are subject to change. Other teams may hold different views and make different investment decisions. For professional/institutional investors only. Your capital may be at risk.

Episode notes

Fixed Income Investment Director Amar Reganti joins host Thomas Mucha to discuss opportunities and risks in today's fixed income markets, exploring the impact of inflation, central bank policy, geopolitical conflict, potential recessions, and much more.

Key topics to listen for:

2:00 — Fixed income in today's volatile environment

4:00 — The power of a reserve currency

8:00 — The Fed and inflation

11:20 — Central bank coordination

16:00 — Fixed income opportunities and risks

20:40 — ESG in fixed income

22:30 — China's role in Treasury markets

28:15 — Amar's research process

31:30 — Career path and personal insights


Pre-intro music soundbite: What is the Fed’s obligation to the rest of the world? Well from a mandate perspective, it’s not there. But at the same time, when you have a reserve currency, effectively you’re a central bank that has enormous influence over the rest of the world. And we also know that financial markets, particularly fixed income markets, are interconnected. You can’t keep crises localized. They tend to spread. 

THOMAS MUCHA:  Twenty twenty-two has been a challenging year on financial markets, to say the least. Volatility has been the new normal, with Russia’s war in Ukraine impacting energy and food prices in the backdrop of the most challenging global inflation environment really in decades. Toss in the Fed’s reset on interest rates, a rising recession risk, deepening social and political friction in the US and around the world, an accelerating US/China geopolitical competition, and then more evidence of a looming global climate crisis, all of this adds up to a highly complex moment for investors around the world. Now today’s topic is how this volatility is playing out, in particular, on global fixed income markets, and whether this is a time to be looking more closely at this asset class. My guest is Amar Reganti, a Wellington Management investment director who specializes in fixed income. Prior to Wellington, Amar also held a key leadership role at the US Treasury Department, so he also speaks the language of Washington, DC, which is a helpful skill at the moment. Amar, welcome to WellSaid

AMAR REGANTI:  Thank you Thomas, it’s great to be here. 

THOMAS MUCHA:  As I just detailed, a lot of variables out there for fixed markets, fixed income investors. From your perspective, how does all of this impact fixed income markets? You know, at the 30,000-foot view.

AMAR REGANTI:  It’s been enormously impactful into fixed income markets. For the better part of several decades, we’ve been part of this trend of slower growth, lower inflation, and for many years, you know, fixed income markets started to get used to that trend. 

THOMAS MUCHA:  So, you had it easy. 

AMAR REGANTI:  (laughs) You know, it wasn’t easy, but you know, these type of shocks were relatively few, and tended to sort of smooth themselves out pretty quickly in the near-term. Now, particularly this year, fixed income markets are facing something that’s a little bit different. And these are exogenous shocks, right? Most of the shocks that we saw in the last 20 years were primarily endogenous, particularly during the GFC, or the global financial crisis. Meaning there were problems within the system, imbalances, supply, demand, financing conditions. But when you look at something like Russia/Ukraine, this is something that is sort of beyond the control of economic policy planning and central banking, just at its core functionality. So, it tends to be, something that fixed income market participants are on the receiving end of in terms of being able to try to navigate like this volatility. In prior times, particularly the GFC, though, you know, there are other periods besides that, fixed income market investors were trying to grapple with things that were easier to understand for them, right? It had to do with whether or not a company that had issued had become riskier, what the financial system plumbing looked like, what was the Fed likely to do? Which they’re still trying to grapple with right now. But ongoing persistent conflict is something that modern fixed income markets simply haven’t had to deal with in a large scale, probably, you know, going back I would say between great powers, almost to World War II. And those were very, very different fixed income markets at that point.

THOMAS MUCHA:  Tell me more about how you view this intersection of geopolitics, of monetary policy, and fixed income. You know, you’ve described a world where complexity is on the rise, so how does that play out practically in investment decisions?

AMAR REGANTI:  I think it’s funny because while I’ve just said that geopolitics is something that central bankers themselves haven’t been sort of trained to be reactive to, nor have fixed income markets, inadvertently, central banks have been at the center of many types of geopolitical events. In the sense that if you just think back just under a decade ago, when you think about the Euro Zone crisis, which is an economic union that in theory at some point will lead to a political union, what saved, in the summer of 2011, the Euro Zone from sort of flying apart? Well, it was central banks, you know, namely the agreements and swap lines that were held between the Federal Reserve Bank of New York and the ECB and its member banks. So, they’ve always been there, and in Japan, the BOJ of course helped implement its own form of quantitative easing during the Abe and Kuroda periods. So, they’re there, and I think it’s disingenuous for them to say that they’re not critical to this geopolitical ecosystem. But right now, I think when you sort of strip away the subtlety behind it, the thing that stood out to me in the most recent year, has been the sheer power of being a reserve currency. We’ve talked about this, and you’ve mentioned it before, but if you see what the Federal Reserve, the US Treasury, and the US government overall was able to do over the course of six months this year or actually fewer when you speak specifically about Ukraine, it was really impressive. The sanctions regime that directly impacted the Russian government’s ability to borrow on the sovereign markets, Russian corporates to borrow in the corporate credit market. And you would almost ask, well why? Why would what the United States says in those specific things have such an outsized impact on what other countries, other corporations, other banks are willing to do? And the reason is because of a reserve currency status. It’s simply too painful not to be able to do business one, in dollars, and two, in the United States, or to feel like that that could be threatened. And of course, how we maintain this reserve currency is a pretty complicated affair. But what we do know is many countries export to the United States to earn dollars. And secondly, I often hear of the US Treasury market, one of the largest securities markets in the world, it is held by, you know, so many central banking and sovereign wealth institutions around the world, and people have often, in the United States at least, said that that’s a sign of weakness, that we owe debt everywhere. The reality is it’s the flipside. It's a sign of the strength of the US dollar as a reserve currency that people are willing to hold securities denominated in it, and they will do many, many things to be able to make sure they have an ample supply of those. To me, this is what jumped out. 

THOMAS MUCHA:  So it’s an exorbitant privilege. 

AMAR REGANTI:  That’s right! I think it was Barry Eichengreen who coined that phrase. It is an exorbitant privilege. But on the flipside of that, I thought we also saw some of the limitations. 


AMAR REGANTI:  The Federal Reserve can’t create more oil. It is linked into financial markets, and that is where its power is, and the US government’s power, to some degree. But in the real economy, that power starts running up and against what I’ll call like, real barriers.

THOMAS MUCHA:  Now, let’s dig into the Fed a little bit, I think you make a really good point about the centrality of the Fed in the economy, and also some of the limitations here. But obviously, what the Fed is doing with its policy right now is a huge focus of the market. So in your view, what’s the thinking at the Fed right now, given all of this? 

AMAR REGANTI:  I don’t envy the Fed, the position it’s currently in. It’s really having to thread the needle right now. It’s facing, from every sort of metric and measurement it utilizes in real-time, like inflation that has crept into large parts of the economy and it’s very concerned that that inflation becomes self-reinforcing, in terms of what they consider a wage price spiral, right? That because goods and services cost some more people, rightfully so, need higher wages, and that feedback kind of continues until you have embedded inflation in the economy. And that’s something they’re very worried about and it’s unclear whether empirically that’s actually a real outcome they should actually be worried about. But this is something, since the 1970s, that is almost doctrine when you think about the Federal Reserve and how it views its role and its dual mandate. So, they want to make sure before they give any even whiff of at least slowing their rate hiking cycle, they want to make sure that there’s actually a downward pressure on inflation that they see. And not modeled but can actually see. And they feel comfortable that that trend is going to be realized. The flipside of course is that many, many indicators that we’re seeing, is we’re seeing a slowing economy as well. And that puts us at a greater risk for inflation, and then you have two quarters of negative growth, that’s not necessarily a recession, even though traditionally, people think of that as the definition. But that would put the Fed in a real bind, right? And, as for next steps, they seem to have committed to continue their rate hiking cycle until they see real evidence of inflation slowing.

THOMAS MUCHA:  So, in this context, what are those data points that the Fed is really going to bore into to see if they’ve overshot or not? 

AMAR REGANTI:  Yeah, I mean they’ll look at a number of things. One of the things that’s probably giving them some comfort is that they will look at what we call break even rates within the US fixed income market, which is really the differential between Treasury Inflation Protected Securities, the yields on those, and nominal, or sort of regular Treasury securities. And that differential has traditionally been the market expectations on what inflation is going to be. Luckily, I think for the Fed, over the last several months, we’ve seen those numbers move downward. And they had gotten relatively high in the beginning part of this year, particularly around the period during the invasion. 

THOMAS MUCHA:  That means the market thinks it’s working? 

AMAR REGANTI:  It can mean a number of things, but one is, is that some people might interpret that as credibility that over some period of time the market’s very convinced that the Fed will be able to control inflation, and it’ll normalize. The other is it could be a recession indicator, as those numbers start moving downward rather rapidly. And third, you know, in part, at least for a portion of that market, we’ve seen crude oil and energy prices start to come down, and that can be directly reflected, particularly in the shorter-dated TIP securities. 

THOMAS MUCHA:  Of those three scenarios, what’s your gut telling you?

AMAR REGANTI:  I don’t think any of them are mutually exclusive, right? I think the answer could be all of the above, part of the curve is reacting to energy prices moving down. Another part of it is saying we think the Fed is credible, we think these break evens will come down. And the third part is saying we should probably have a recession. And that could be because the Fed is credible and is willing to engineer a recession in order to make sure that inflation is managed according to their mandate.

THOMAS MUCHA:  So, you mentioned earlier, Amar, how important central banks were to previous crises. And we had coordination as you say. Do you expect that to continue into the future, especially when we have such a fractured international environment? I mean, how do you think about the prospects for future central bank coordination?

AMAR REGANTI:  You know, I think in the summer of ’11, when there was a genuine dollar funding crisis taking place in many parts of the world, the Fed setting up swap lines to provide dollars to foreign central banks, particularly the ECB, was critical to stabilizing the system. 

THOMAS MUCHA:  Yeah, public good.

AMAR REGANTI:  Effectively a public good, that’s right. The Fed not doing that in a similar situation would probably be a very destabilizing event. This is interesting, right? Like, what is the Fed’s obligation to the rest of the world? Well from a mandate perspective, it’s not there. But at the same time, when you have a reserve currency, effectively you’re a central bank that has enormous influence over the rest of the world. And we also know that financial markets, particularly fixed income markets, are interconnected. You can’t keep crises localized. They tend to spread. They upset institutions that both traffic in your currency, and your securities, as well as other ones. And this was the scenario with the large European banks in the summer of ’11. So, for all intents and purposes, the Fed, as much as it institutionally and culturally does not want to necessarily involve itself in what it would consider things that are beyond its mandate, for the sake of financial stability, which you know, if you read your history, that’s what the Fed was originally created for, it’s almost forced to intervene. Now where it’s forced to intervene that might depend on crisis to crisis, and what the appetite is, but you can’t unplug yourself from the world when for all intents and purposes, the world utilizes the currency that you provide. 

THOMAS MUCHA:  That’s interesting. So, you know, you’ve worked at the Treasury Department. You know a lot of people that are still there, obviously you know people at the Fed, at the ECB, other policymakers around the world. What kind of light can you shed on some of the conversations that are likely to be happening right now in terms of how important is the Fed policy? How does it interact with these big geopolitical shifts we’re seeing? How does it interact with these structural changes in inflation? I mean what’s it like to be a policy maker in a time like this?

AMAR REGANTI:  Sure. Well particularly on monetary policy, the Fed almost jealously guards its prerogative on setting that, right? What I always find interesting is the dynamic between central banks and their ministries of finance. Right? Which in the United States, it’s the Federal Reserve and the Treasury. And for those history geeks out there, people will know that the prerogatives of the Fed and the Treasury were set in the 1950s, during the Fed-Treasury Accord, which is this overlooked deal, which was a political deal, where after these two institutions clashed, the Truman administration basically said the Fed will have control over things like inflation, and the Treasury will have control over things like government financing. However, those two things, you know, interact often, very much so. So, you know, if you think about those two institutions and, and this sometimes plays out in other parts of the world, these are civil servants who have you know, the same goal of trying to help their country and try to make it a place that is a better place over time to live. But at the same time, their mandates are different, their cultures are different, their prerogatives are different. In Japan, for example, where the BOJ will be engaged in some type of bond buying program, or yield curve control, which they have, but the Ministry of Finance will decide that it’s time to raise the consumption tax, right? These two things are almost in conflict with each other. 

THOMAS MUCHA:  Well, how do those discussions get resolved?

AMAR REGANTI:  It can be varied, right? It can be, you know, we’ll agree to disagree on this. Sometimes they might not even talk about it, because they feel like that sharing of information kind of goes beyond their sort of role. And you know, in the next several weeks, one thing that’s going to happen is, there’s a really big decision the Treasury Department is going to have to make about how it’s going to finance quantitative tightening, where the Federal Reserve essentially asks for repayment of the bonds that it’s bought in the public markets, and the Treasury Department has to decide, will it issue more short-term bonds, will it issue more long-term bonds, all of which, by the way, has implications for monetary policy. But that’s a decision the Treasury Department is going to make by itself. It might take input and feedback, but it is a decision the Treasury staff feel like it’s important for themselves to make, and their job is to announce it, to be open about it once they do, and to adhere to it, and then the Fed can do whatever it wants based on that information. 

THOMAS MUCHA:  Right, so they just have to deal with it one way or the other.

AMAR REGANTI:  That’s correct, right? They all have their own goals here.

THOMAS MUCHA:  All right, so you know, given this shifting backdrop, all of these variables that we’re talking about, let’s talk about opportunities and risks in fixed income. So, start with the good news. Where are you finding the opportunities right now? 

AMAR REGANTI:  The good news is that from a pure valuation perspective, if you just looked at, you know, a naïve metric that we look at in fixed income called yield to worst, this is an extremely attractive time. You’re getting paid to underwrite all kinds of different risk in fixed income, and that can be either on the riskier side of things like higher yielding debt or even on the higher quality fixed income market, and that’s typically in the United States, at least, typified by something like the, the Bloomberg Barclay’s Aggregate Index, where now, you know, the yields are into the low to mid single digits, which for a high-quality strategy that has very little default risk embedded within it, that’s relatively attractive after you consider the prior years. I think additionally, there’s been almost a renaissance that’s taken place in the last six months in fixed income markets. For a number of years, you know, global macro strategies, or strategies that were what we call relative value that looked at differentials between different interest rate markets or currency markets were really overlooked and because there wasn’t a lot of volatility in the market, Thomas, and these strategies tend to do well in volatile times - they had fallen out of favor. Now they’ve come roaring back, and from your research, we think it’s something that might be persistent for longer periods of time than we’re used to. And in that case, these type of strategies tend to be built for it. So, I’m probably more bullish on the fixed income sector than I have been in a significant amount of time. And in fact, I think it’s kind of hard to really say I particularly like one thing better than the other when so many of the sectors appear attractive.

THOMAS MUCHA:  What about the negatives? 

AMAR REGANTI:  Well, the negatives are that if you do have a significant amount of volatility, even if yields are high, it might mean that your actual total return can jump up and down, right? Just in the near-term. Over the intermediate and longer term, you know, if you have confidence in the bonds you bought, and they get paid back, you should do well, but in the nearer term, like this is volatility, you kind of have to navigate it. And of course, what keeps us all up at night is prolonged continuous conflict. You hope it doesn’t happen, but the chance of that escalating, and then of course in a destabilized world, that gives the ability for other conflicts that you weren’t thinking of to arise. So, all of those things would be additional volatility the market probably hasn’t priced in yet. And then that would probably feed upon the inflationary cycle, as well. So, those things are risks, and as we know, there’s not free lunches everywhere. What you’re doing when you’re investing is you’re underwriting risk, right? And trying to make a judicious view of that. 

THOMAS MUCHA:  So obviously, the shocks that we’re seeing in the inflation backdrop are difficult to manage. So is economic dislocation, you know, resulting from COVID, so big things, now we’ve got his war. So big shocks are hitting the fixed income markets. How has that changed your short and long-term views on the fixed income opportunities? 

AMAR REGANTI:  Right. In the short-term, we should expect a lot more dispersion and dislocations taking place in the fixed income market. So, what that means is that it’s going to kind of break down the grouping together of lots of securities. That might have had different risks or reacted different ways to volatility. Now you’re going to see a lot more dispersion in prices between securities and issuers, between sectors. That’s probably actually a, from an investment perspective, a good thing, right? There’s a lot more delineation that’s likely to take place. I think, additionally to that you’re going to be able to really start focusing a lot more on things like, you know, political risk and ESG, things that while the market was focusing a lot more on in prior years, is probably something that’s going to accelerate as people try to understand from the spread and yield perspective, are they being adequately compensated for these things? In the longer run, it means that there needs to be what we call risk premia more structurally embedded. And there’s a lot of debate in fixed income, and how you define risk premia, but it’s always what we consider almost like the buffer of spread that you expect above and beyond the actual risk of something happening, right? You just need to know, it’s almost like an uncertainty. And if there’s enough uncertainty premia that’s built into markets, that actually becomes a very powerful driver of returns. You’re earning more than the actual realized events, right? But as you know, particularly in things that, like geopolitical, that’s much harder to model, it’s much harder to embed, and the shocks can happen a lot faster. 

THOMAS MUCHA: So, you mentioned ESG, and I’m very curious to hear your views on what’s really driving the ESG considerations in fixed income, and how that might be different than the equity market implications. 

AMAR REGANTI:  Sure. I think it is something that is expected as a standard, right, in terms of how you are looking at fixed income securities. When you’re trying to understand reputational, legal, environmental risks to a company, that’s actually very similar to credit underwriting, right? The job of a good credit analyst, and that’s how I first started my career in this business, was to look at a credit, an issuer, and try to understand all of the things that could go wrong. Before, it was primarily purely ones you gleaned off of financial statements, as well as some qualitative judgment as well, when you’re looking at the business positioning and so on. But now, ESG is becoming a lot more explicit in that. And it actually fits rather well in a credit underwriting framework. Secondly, there’s a lot more room within the fixed income markets for this type of development, and this type of integration and it’s happening rather rapidly. There’s a regulatory drive as well that’s taking place, particularly in Europe in looking at things like ESG and sustainability. My colleagues Anand Dharan, Meredith Joly, and Keenan Choy wrote a really excellent white paper of looking at ESG and sustainability within the context of fixed income. And we think it’s going to be more and more a driver of analysis, of allocation, and even product development within the space.

THOMAS MUCHA:  Great. Now you also mentioned geopolitical shocks.


THOMAS MUCHA:  And how that plays out in these markets. And you know, listeners of this podcast know how much we talk about and think about the macro and market implications of great power competition, you know, we mentioned Russia several times already. I’m curious about your views on China, how important China’s role is in the US Treasury market, and from a geopolitical perspective, you know, should we be expecting this great power competition to spill over into these areas? 

AMAR REGANTI:  It’s a great question, it’s one I think that a lot of fixed income market practitioners have debated over the years. I view it in a few ways. Like I had said many countries export to the United States to earn dollars. And China was no different in that regard. The earning of dollars was the path to prosperity that the Chinese government felt. And over time, China became a very, very serious player in Treasury markets, and in fact the majority of those are managed by SAFE, the State Administration for Foreign Exchange, which is the Chinese government entity that manages its reserves. It was and it is and it most likely will continue to be, a very important player, even though the percentage of Treasuries outstanding it owns has sort of declined over time. So that’s not going to go away, and I’ve heard this before, that well, you hear China owns a trillion dollars of Treasuries, oh my gosh, but the reality is that if you flip that on its head, what China has done is it's sold us goods and services, primarily goods, and they’ve received, you know, Treasury bonds, which are electronic IOUs with coupons that the United States has given them, and the United States can create the dollars to effectively repay them at any point, on demand, if they wanted, right? If, for some reason the Chinese government didn’t want them. But the other question that sometimes dives down to is well what happens if China decides to sell all of that? 

THOMAS MUCHA:  I get that question all the time.

AMAR REGANTI:  Okay so let’s talk through that, right? So let’s say they look to markets and they say, “Sell US$1 trillion of Treasuries, looking for bids,” right? If they do it all at once. Well, the first thing is obviously that would be destabilizing to markets. I mean it’s much more about the signals, right? That China is truly trying to break, you know, its linkages to the US, and to me, there’s all kinds of issues related to that. But from a pure plumbing perspective, which is how I tend to look at things as a fixed income practitioner, well first, if the Federal Reserve Bank of New York and the Fed thought that was destabilizing, right, they could literally say, “Done,” right? They could say, “We’ll take the trillion, we’ll credit whatever banks that you want to transact this through to their accounts.” And they will literally... 

THOMAS MUCHA:  Absorb it.

AMAR REGANTI:  …absorb it, like a QE operation if you kind of think about it, right? They’ve just done a massive, the largest QE operation. But let’s say that doesn’t happen, right? Well China needs to sell to somebody. So, let’s say they sell it to a conglomerate of nations that wants to buy it, and what will they receive in exchange for that? Dollars. Like what, what will they do with those dollars? You don’t go deposit a trillion dollars someplace, right? The reason why those dollars are invested in Treasuries is because of the depth and liquidity of those markets. So maybe then they dump that trillion, they’re like I don’t want dollars, I’ll sell these dollars and take in euros or something. Just something else, right? Well, someone else has this trillion dollars of dollars. And what are they going to do with it? So, it’s very difficult from an operational perspective to think of how they could execute this without some type of official sector intervention in the United States, but if they did, someone is holding this, and someone will most likely want to hold this. 

THOMAS MUCHA:  So, it’s another dimension of this exorbitant privilege we talked about.

AMAR REGANTI:  That’s exactly right. Now, what China has been doing over the last several years, and, and primarily led by the People’s Bank of China, is trying to internationalize the renminbi to make it more broadly used, right? So, there was the advent of the offshore market in renminbi bonds where corporate issuers, you know, might want to tap that market. There is bilateral swap lines set up with trading partners that China considers important now, or will be important in the future, and the goal there is to encourage trading and critically, invoicing of your goods and services in renminbi. And the goal there is to make the renminbi a more internationalized currency.

THOMAS MUCHA:  Can they do it? 

AMAR REGANTI:  Well, I think they’re taking steps to do it. And getting to an internationalized currency, I think is a much easier lift over time than a reserve currency. Right? A reserve currency is something completely different. And if you read Barry Eichengreen, he talks about how a waiter in a country accepted dollars, even though that wasn’t the local currency. As a child, I remember that when I would visit India, and all I had was dollars as a kid, and I would tip a waiter in dollars, and that was fine. The ubiquity of a reserve currency is it being accepted everywhere. It has to be liquid, it has to be convertible. And that gets us to the point of convertibility. You have to probably open up your capital account to do that. And that is all kinds of other issues for China. It means effectively a shift in what economic management means in the country. Money can move in, but it also means money can move out. And the controlling of that is something that’s been very central to Chinese policy makers for a long time. So, you can want that head of the table, but the price to get there can be very, very challenging. 

THOMAS MUCHA:  So even if they do want to do that, it’s going to take years or longer, decades. 

AMAR REGANTI:  That’s correct. And, and there are some observers who would say why do you even want this, right? Some people would argue the United States paid a brutal price to maintain reserve currency status. That in a way, over time, the dollar was worth more than what a more fair or econometrically tested kind of valuation metric would be. And that, you know, damaged US manufacturing interests, our exporting capabilities. So, it is not a free lunch, there’s a real price to it. 

THOMAS MUCHA: All right, I want to conclude this fascinating discussion with a couple of questions about you, Amar, your research process. Let’s start with a book or two, or three, that has had a practical and positive impact on the way you think about the world, the way you think about fixed income, the way you think about research.

AMAR REGANTI:  I’m glad you said three, because fixed income markets are so heterogeneous. I don’t think there’s any one book that truly trains you in it. So, for me, I remember being pretty stunned when I read America’s Bank by Roger Lowenstein, about the founding of the Federal Reserve. And the problems in the US monetary system up to that point. Including in things like agriculture that you just wouldn’t even think of because many farmers couldn’t get loans during harvesting season because reserves were not equally spread around the country. A book I read recently but has had a profound impact on me has been Zach Carter’s book on Keynes, The Price of Peace. And what was really extraordinary about that book, and I actually messaged Zach to say that I thought this should be standard reading for policy makers, was that many of the problems that Keynes grappled with over 100 years ago were many of the same things we see today. The thoughts of rising protectionism, what is austerity versus government budget deficits? The tradeoffs that we think about in economic policymaking. And Keynes like painfully had to deal with those.

THOMAS MUCHA:  We never learn, do we? 

AMAR REGANTI:  It’s amazing that they grappled with so many of the same problems, and sometimes you worry that the same mistakes are almost doomed to be repeated again. And then, a third book and person who really has made me think a lot about government policy, government markets, is Stephanie Kelton and her book The Deficit Myth. And that’s obviously controversial, there’s a lot of people who disagree with her assessments, you know, many sort of classical economists would push back. But the one thing that Kelton and her colleagues have really been able to do is they’ve really pushed the envelope on what fiscal capacity is in the government. And as a former Treasury official, the one thing I remember in those years following the GFC is almost an obsession we had with deficit reduction, right? With things like the grand bargain, and sequestering, all of which were there because there was, even within the administration I was working for, a view that we had some kind of debt capacity limits that needed to be addressed right away. And in hindsight we look back and we look at what a slow recovery, the United States had following the GFC, and we recognize that taking the foot off the pedal at the time was a mistake. It led to some actual real economic scarring. And this is something Kelton and her colleagues were shouting from the rooftops at the time, but no one was really spending a lot of time looking at. So, to me, that experience at Treasury really kind of seared me, and when I had looked at some of the work that she had done, I said well wow that actually, you know, makes a lot more sense. Now again, people can have conflicting views of the work, but I do think in economics, in government policy, it’s good to push yourself to really push the envelope of what you took as a pure science and understand there’s a lot of other complicated metrics involved.

THOMAS MUCHA:  And there’s nothing like getting burned in the real world to teach lessons like that. 

AMAR REGANTI:  That’s correct, yeah.

THOMAS MUCHA:  All right, last question. If you weren’t a fixed income investment director at Wellington, you know, it’s a big world out there, what are some of the other things that you could imagine yourself being?

AMAR REGANTI:  Well, it’s funny I’d spent just under four years as a civil servant at the Treasury Department, and I was lucky enough to already get to do the job that I had always wanted to do, which sounds maybe overly geeky, like who as a kid like, dreams of that? But it was a fascinating environment at a fascinating time. So, to me, I’ve been lucky enough to do the job that I really had been itching to do at some point in time, so I mean beyond that I promised myself I would take culinary lessons. And that would probably be the only other thing I think.

THOMAS MUCHA:  What’s your go-to dish?

AMAR REGANTI:  I can make a really, really good braised short rib, so sometime I’ll make that for you.

THOMAS MUCHA:  Oh! Well what’s the secret ingredient here? 

AMAR REGANTI:  A lot of mistakes in the beginning.

THOMAS MUCHA:  All right Amar, thanks so much for the time and your expertise, this has been a great discussion. Once again Amar Reganti, investment director at Wellington, thanks for being here.

AMAR REGANTI:  Thank you for having me. 



Views expressed are those of the speaker(s) and are subject to change. Other teams may hold different views and make different investment decisions. For  professional/institutional investors only. Your capital may be at risk. Podcast produced August 2022.

Wellington Management Company LLP (WMC) is an independently owned investment adviser registered with the US Securities  and Exchange Commission (SEC). WMC is also registered with the US Commodity Futures Trading Commission (CFTC) as a  commodity trading advisor (CTA) and serves as a CTA to certain clients including commodity pools operated by registered  commodity pool operators. WMC provides commodity trading advice to all other clients in reliance on exemptions from CTA  registration. WMC, along with its affiliates (collectively, Wellington Management), provides investment management and  investment advisory services to institutions around the world. Located in Boston, Massachusetts, Wellington Management also  has offices in Chicago, Illinois; Radnor, Pennsylvania; San Francisco, California; Frankfurt; Hong Kong; London; Luxembourg; Milan;  Shanghai; Singapore; Sydney; Tokyo; Toronto; and Zurich.     This material is prepared for, and authorized for internal use by, designated institutional and professional investors and their  consultants or for such other use as may be authorized by Wellington Management. This material and/or its contents are current  at the time of writing and may not be reproduced or distributed in whole or in part, for any purpose, without the express written  consent of Wellington Management. This material is not intended to constitute investment advice or an offer to sell, or the  solicitation of an offer to purchase shares or other securities. Investors should always obtain and read an up-to-date investment  services description or prospectus before deciding whether to appoint an investment manager or to invest in a fund. Any views  expressed herein are those of the author(s), are based on available information, and are subject to change without notice.  Individual portfolio management teams may hold different views and may make different investment decisions for different clients.  In Canada, this material is provided by Wellington Management Canada ULC, a British Columbia unlimited liability company  registered in the provinces of Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Nova Scotia,  Ontario, Prince Edward Island, Quebec, and Saskatchewan in the categories of Portfolio Manager and Exempt Market Dealer.   

In Europe (excluding the United Kingdom and Switzerland), this material is provided by Wellington Management Europe GmbH  (WME) which is authorized and regulated by the German Federal Financial Supervisory Authority (Bundesanstalt für  Finanzdienstleistungsaufsicht – BaFin). This material may only be used in countries where WME is duly authorized to operate and  is only directed at eligible counterparties or professional clients as defined under the German Securities Trading Act. This material  does not constitute investment advice, a solicitation to invest in financial instruments or information recommending or suggesting  an investment strategy within the meaning of Section 85 of the German Securities Trading Act (Wertpapierhandelsgesetz).   In  the United Kingdom, this material is provided by Wellington Management International Limited (WMIL), a firm authorized and  regulated by the Financial Conduct Authority (FCA) in the UK (Reference number: 208573). This material is directed only at eligible  counterparties or professional clients as defined under the rules of the FCA.   In Switzerland, this material is provided by Wellington Management Switzerland GmbH, a firm registered at the commercial register  of the canton of Zurich with number CH- This material is directed only at Qualified Investors as defined in the Swiss  Collective Investment Schemes Act and its implementing ordinance.  In Hong Kong, this material is provided to you by Wellington Management Hong Kong Limited (WM Hong Kong), a corporation  licensed by the Securities and Futures Commission to conduct Type 1 (dealing in securities), Type 2 (dealing in futures contracts),  Type 4 (advising on securities), and Type 9 (asset management) regulated activities, on the basis that you are a Professional  Investor as defined in the Securities and Futures Ordinance. By accepting this material you acknowledge and agree that this  material is provided for your use only and that you will not distribute or otherwise make this material available to any person.  Wellington Investment Management (Shanghai) Limited is a wholly-owned entity and subsidiary of WM Hong Kong.   

In Singapore, this material is provided for your use only by Wellington Management Singapore Pte Ltd (WM Singapore)  (Registration Number 201415544E). WM Singapore is regulated by the Monetary Authority of Singapore under a Capital Markets  Services Licence to conduct fund management activities and is an exempt financial adviser. By accepting this material you  represent that you are a non-retail investor and that you will not copy, distribute or otherwise make this material available to any  person.   In Australia, Wellington Management Australia Pty Ltd (WM Australia) (ABN 19 167 091 090) has authorized the issue of this  material for use solely by wholesale clients (as defined in the Corporations Act 2001). By accepting this material, you acknowledge  and agree that this material is provided for your use only and that you will not distribute or otherwise make this material available  to any person. Wellington Management Company LLP is exempt from the requirement to hold an Australian financial services  licence (AFSL) under the Corporations Act 2001 in respect of financial services provided to wholesale clients in Australia, subject to  certain conditions. Financial services provided by Wellington Management Company LLP are regulated by the SEC under the laws  and regulatory requirements of the United States, which are different from the laws applying in Australia.  In Japan, Wellington Management Japan Pte Ltd (WM Japan) (Registration Number 199504987R) has been registered as a  Financial Instruments Firm with registered number: Director General of Kanto Local Finance Bureau (Kin-Sho) Number 428. WM  Japan is a member of the Japan Investment Advisers Association (JIAA), the Investment Trusts Association, Japan (ITA) and the  Type II Financial Instruments Firms Association (T2FIFA).  WMIL, WM Hong Kong, WM Japan, and WM Singapore are also registered as investment advisers with the SEC; however, they will  comply with the substantive provisions of the US Investment Advisers Act only with respect to their US clients.  ©2022 Wellington Management Company LLP. All rights reserved.