Sherman rejects the idea that investors should buy credit merely because its headline yield looks appealing. Treasuries already provide yield, so corporate and high-yield bonds must offer additional compensation for default, spread, liquidity, and other risks.

Corporate spreads were historically tight
Headline yield can conceal inadequate risk premiums
Treasuries provide a lower-risk yield alternative
Each additional risk needs separate compensation

“Well, if you only care about yield, just go buy treasuries. They have yield.”
Jeffrey Sherman · 21:08

“you have to get compensated for each risk.”
Jeffrey Sherman · 21:11

#bonds#credit spreads#yield#risk premium

Myth Buster43:46

Why the Forward Curve Is a Poor Rate Forecast

Sherman warns against treating market-implied future rates as superior knowledge. Bond investors are still fallible people, and the forward curve repeatedly predicted imminent rate hikes during years when rates remained pinned near zero.

The bond market is not omniscient
Forward rates have repeatedly missed actual policy paths
Market enthusiasm can overprice expected cuts or hikes
Investors should test the curve against economic evidence

“That forward curve is a bad indicator of where rates are going. It always has been”
Jeffrey Sherman · 44:02

“I thought the market got way too giddy at this point.”
Jeffrey Sherman · 44:18

#interest rates#forward curve#forecasting#bonds

Myth Buster58:05

The Hidden Refinancing Risk in “T Bill and Chill”

Treasury bills provided attractive low-risk income while policy rates stayed high, but Sherman says the strategy is not risk-free. Investors repeatedly refinance at prevailing short-term rates, so unexpected Fed cuts can rapidly reduce income and leave them wishing they had locked in longer yields.

T-bills worked well during high policy rates
The primary risk is reinvestment rather than default
Each maturity exposes the investor to new market rates
Rate cuts can reduce income quickly
Moving modestly farther out can lock in yield

“It has refinancing risks.”
Jeffrey Sherman · 58:30

“If Jay cuts rates, you don't get to chill as much”
Jeffrey Sherman · 58:35

#treasury bills#reinvestment risk#rate cuts#cash

Hot Take· 2

Hot Take25:49

Fiscal Stimulus Reached Consumers More Directly Than QE

Sherman distinguishes direct fiscal transfers from monetary policy's reliance on a wealth effect. He argues that fiscal stimulus changed consumer behavior by putting money into the system directly, while asset-price appreciation disproportionately benefited people who already owned substantial assets.

Fiscal transfers directly supported consumption
QE relied on an indirect wealth-effect theory
Asset ownership is concentrated among wealthier households
Higher wealth does not guarantee proportionate spending into the broader economy

“the fiscal stimulus drives the consumer at the end of the day”
Jeffrey Sherman · 27:02

“I think trickle down economics is stupid.”
Jeffrey Sherman · 27:32

#fiscal policy#monetary policy#consumer#wealth effect

Hot Take53:38

The Next Fiscal Rescue Could Reverse a Recession Bond Rally

Sherman expects Treasuries could initially rally during a recession, but warns that a pandemic-scale fiscal response could quickly revive inflation concerns. In that scenario, investors may want to rent duration for the initial downturn rather than own it throughout the policy response.

Large deficits are more dangerous during the next recession
Pandemic stimulus created a precedent for aggressive fiscal action
Bonds may rally before fiscal authorities respond
Inflation expectations could reverse the rally
Duration may become a tactical rather than permanent holding

“I think you can get a rally going into a recession. But once the fiscal authority start to act, you may not want to be…”
Jeffrey Sherman · 54:13

“You may have wanted to rent it over that period.”
Jeffrey Sherman · 54:18

#recession#fiscal policy#treasuries#inflation

Explainer· 3

Explainer31:04

Why Consumers Feel Bad but Keep Spending

Inflation slowed on a year-over-year basis, but households remained anchored to much lower pre-pandemic prices for groceries and fuel. Sherman argues that this cumulative price increase depresses sentiment without necessarily stopping spending, especially while employment and wages remain supportive.

Consumers compare prices with pre-pandemic levels
Cumulative inflation remained in the mid-to-high twenties
Poor sentiment does not necessarily imply lower consumption
Employment allows spending to continue despite frustration

“I think people's anchor is pre pandemic”
Jeffrey Sherman · 32:02

“that I think is weighing on sentiment, but it's not changing the dynamic of the spending.”
Jeffrey Sherman · 32:12

#inflation#consumer sentiment#spending#prices

Explainer39:17

How Higher Mortgage Rates Can Keep Housing Inflation Sticky

Homeowners refinanced into unusually low mortgages and became reluctant to sell when prevailing rates approached 7%. Sherman argues that this lock-in removed inventory, supported home prices, and may have made measured housing inflation more persistent despite tighter monetary policy.

The effective agency mortgage coupon was about 3.75%
Refinancing strengthened household finances
Higher rates discouraged existing owners from moving
Reduced inventory supported home prices
Lower mortgage rates could release supply and pressure prices

“The supply is gone.”
Jeffrey Sherman · 40:48

“My contention is if if mortgage rates came down two hundred, prices go down”
Jeffrey Sherman · 41:03

#housing#mortgages#inflation#federal reserve

Explainer54:22

Why Treasury Could Not Refinance Everything at Long-Term Rates

Although the government missed an opportunity to issue more long-dated debt when yields were extremely low, Sherman explains that Treasury must preserve liquidity across the yield curve. Concentrating all issuance in 30- or 50-year bonds would have impaired the functioning market needed by different investors and maturities.

Treasury supports a full term structure of rates
Regular auctions create liquidity across maturities
Long-dated issuance had unusually strong demand
More duration could have been issued without moving everything long
Entrenched short-term issuance still worsened refinancing exposure

“You can't just say all we're going to do is issue fifty year treasuries.”
Jeffrey Sherman · 56:11

“you've got to have some dynamic of providing that liquidity to different points on the curve”
Jeffrey Sherman · 56:47

#treasury#debt management#liquidity#yield curve

Story· 2

Story02:35

How a Mathematics Student Found Financial Engineering

Sherman originally pursued teaching and academic mathematics but discovered through classroom observation that the career did not suit him. Probability, statistics, econometrics, and the late-1990s rise of quantitative finance eventually gave him a practical destination for his mathematical skills.

Classroom observation changed his view of teaching
Applied mathematics did not reveal an obvious career path
Statistics and econometrics provided a bridge into finance
Mathematical training made finance easier to learn

“we can teach mathematicians finance, we can't always teach finance majors math.”
Jeffrey Sherman · 06:23

“you should always gravitate to some of your internal skill set, and that's what I did.”
Jeffrey Sherman · 07:59

#career#mathematics#financial engineering#education

Story13:53

Why Distressed Mortgages Offered Exceptional Post-Crisis Returns

DoubleLine launched into a market where deeply discounted mortgage bonds offered large cash yields and substantial recovery upside. Sherman describes stress-testing bonds bought near fifty cents on the dollar under draconian scenarios and finding that they could remain profitable without recovering to par.

Mortgage bonds had fallen by 50% to 60%
Purchase price mattered more than recovering full par value
A 6% coupon bought at 50 implied a 12% current yield
Severe loss scenarios still produced attractive outcomes
Investors remained anchored to the previous collapse

“we think we're going to get seventy five cents on the dollar back, Well, why the hell would you buy this bond?”
Jeffrey Sherman · 17:02

“when it's just a hell out there and there's blood on in the streets, that's when the greatest opportunities come.”
Barry Ritholtz · 19:06

#mortgages#financial crisis#distressed debt#credit

Tool· 1

Tool36:16

Why Sherman Watches Weekly Unemployment Claims

Sherman prefers unemployment claims as a practical check on disputed labor-market statistics. Because eligible people have a strong incentive to file after losing work, persistently low initial and continuing claims provide evidence that employment conditions remain firm.

Claims are tied to observable worker behavior
Workers have an incentive to file after job loss
Initial claims near 200,000 indicated limited layoffs
Continuing claims help confirm the signal
Strong employment supports continued consumption

“I watch unemployment claims because we can argue.”
Jeffrey Sherman · 36:17

“when I look at it claims and not seeing spikes that were continuing claims not being out there, to me, it says something about that…”
Jeffrey Sherman · 36:59

#labor market#unemployment#economic indicators#consumer

Takeaway· 4

Takeaway09:22

Your First Market Regime Can Anchor Your Investing Style

Sherman argues that the conditions present when someone enters finance can shape the role they pursue and the risks they prefer. Starting during the dot-com collapse and 9/11 made his cohort more risk-averse than people who entered during stronger markets.

Entry conditions can shape professional identity
Crisis-era entrants may become more risk-averse
Later experience can modify but not erase the anchor
Career cohorts may develop different risk instincts

“I think there's this anchoring of when you start one's career sometimes of how you get into a side of the business.”
Jeffrey Sherman · 09:52

#career#anchoring#risk#market cycles

Takeaway32:19

The Deposit-Rate Gap Blunted the Fed's Saving Incentive

Higher policy rates were supposed to encourage saving, but many banks continued paying almost nothing on ordinary deposits. Financially literate savers moved into money-market funds near 5%, while others missed the incentive because the banking system did not transmit higher rates to them.

Savings accounts often paid only one or two basis points
Money-market funds offered roughly 5%
Accessing market rates required financial literacy
Weak deposit transmission reduced the incentive to save

“You move to a money market, you're getting about five percent.”
Jeffrey Sherman · 32:55

“I didn't realize that the banking system wasn't transmitting that megazine.”
Jeffrey Sherman · 33:21

#savings#money markets#financial literacy#interest rates

Takeaway1:06:06

Challenge the Room When Everyone Agrees

Sherman credits DoubleLine's culture with encouraging analysts to question assumptions and attack ideas without becoming contrarian for its own sake. Unanimous agreement is treated as a prompt to ask what the team might collectively be missing.

Team members are encouraged to challenge one another
Questions are welcomed regardless of seniority
Ideas improve when colleagues actively poke holes
Consensus itself can signal an unexamined risk
Contrarianism should serve analysis rather than identity

“all of us are really pushed to challenge each other and there's no dumb questions.”
Jeffrey Sherman · 1:06:32

“what are we all missing when we're all nodding vertically up and down?”
Jeffrey Sherman · 1:06:58

#investment teams#culture#decision making#dissent

Takeaway1:12:24

Models Guide Investors, but Human Behavior Drives Markets

Sherman says he entered finance believing mathematics could model everything, then learned that investment tools are only guides because people make the underlying decisions. Psychology, incentives, and career risk prevent markets from behaving like systems of consistent utility maximizers.

Mathematical models are decision aids rather than complete reality
Investors do not consistently act in their own best interests
Institutions still express human incentives
Career risk changes how different organizations behave
Market intuition often reflects perceived shifts in psychology

“Everything we have in the toolkits a guide because it's people making decisions and we are inherently strange creatures.”
Jeffrey Sherman · 1:12:34

“We are not utility maximizers”
Jeffrey Sherman · 1:12:49

#behavioral finance#models#psychology#investing

Frameworks in this episode

Fundamentals-Technicals-Money Flow Triad

Multi-Horizon Trend Analysis

Relative CAPE Sector Rotation

Yield-Duration Break-Even Test

Insights & moments

⚡Myth Buster· 3

A High Yield Is Not Automatically an Attractive Bond