DoubleLine Capital Sep 18, 2026
With Ken Shinoda, Portfolio Manager at DoubleLine Capital
A 5% yield on the 10-year Treasury note used to be the ceiling of the trading range, Ken Shinoda said. He now thinks it is the middle of a new one.
The Federal Reserve raised rates unanimously that afternoon and most of the discussion afterwards was about how many more hikes follow. Shinoda's answer is that the 2-year note has already told everyone, and that the 10-year has room to rise from here rather than room to fall.
"But I think in this new inflation regime, I wouldn't be surprised if maybe 5% is the middle of the ground and 475 is the lower end and we can get up to 5.25% easily on the 10-year."
Shinoda manages money at DoubleLine Capital, where he has been telling clients to own short-dated credit rather than long bonds. He says that is the position which has been the top performing part of the bond market, and he has not changed it.
The full segment is covered here so you can skip it.
Here are the 7 calls that matter.
Key Takeaways
5% on the 10-year is the middle of a new range, on his reading, with 4.75% the low and 5.25% reachable
The market had priced more than a 90% probability of the hike, and the forward curve carries as many as three more moves through the end of 2027
The Fed follows the 2-year note, and the 2-year is saying there is more work to do
He will not buy 30-year bonds: with core inflation near 3.5%, a 5% nominal yield is not a high real yield
Newly issued agency mortgage bonds pay about 120bps over Treasuries, and short investment-grade paper 120 to 175 over
Investment-grade spreads are still below 80bps while leveraged loans, high yield and private credit show cracks
Corporate indexes are filling with technology, AI and data-center debt, so a passive credit allocation may be the same bet as the equity one
1. The Hike Was Priced In
Asked whether the meeting delivered what he expected, Shinoda started with what the market had already done.
The hike was not the surprise
I mean the market was pricing in north of a 90% probability for a hike, so I think we were pretty positive that they were going to do something
Ken Shinoda
Longer-dated Treasuries rallied on the announcement and gave it all back, he said. The 10-year note ended slightly higher in yield than it started the day, and the 30-year bond was down six or seven basis points before returning to unchanged.
His read on that reversal
So, I think the market thinks that they needed to do more.
Ken Shinoda
What the forward curve carries
If you look at the forward curve, the market thinks they could cut as much as three times through to the end of 2027.
Ken Shinoda
The host corrected the direction immediately: the curve is pricing three more hikes, not cuts. The meeting itself, on the host's summary, came down to a unanimous decision to raise, more officials seeing at least one further hike and possibly another this year, little happening in 2027, and modest downward revisions to some economic projections.
2. The 2-Year Is the Signal
The host put the framing that matters for anyone holding bonds: with the dot plot implying a path toward roughly 4.1% on the funds rate and the 2-year note already trading at 4.7 and change, how much of the tightening is the bond market doing rather than the Fed?
Who is doing the work
Well, definitely a good amount of the work is being done by the bond market. And if you go back through history, the Fed usually follows the 2-year, and the 2-year is saying we got more work to do.
Ken Shinoda
He treated that as good news for anyone buying short-dated paper, because it means attractive yields on the part of the curve he wants to own. The part he does not want is the other end.
Where he sees more downside
We're just not too excited to step in the long end. We think there's potentially more downside there.
Ken Shinoda
And the reason is fiscal
You still got fiscal deficit issues. We're talking about sending $5,000 to everybody.
Ken Shinoda
This is not a US-only problem, he added, it is a global one.
So the position is unchanged
And so, we still like hugging that front end of the yield curve.
Ken Shinoda
3. Where the 10-Year Goes
Asked what a 5% yield on the 10-year note is telling him, Shinoda was direct.
His answer on the level
I think it can go higher.
Ken Shinoda
His reasoning was two things that do not resolve quickly. Capital spending by the large cloud companies is not ending, and he doubts a rapid resolution to the problems in the Middle East. He also referred to somebody on the network earlier saying inflation would magically go away, which he does not believe.
What that means for the path
So, we're going to be in a world of elevated inflation for longer. And so, I think you could see more hikes.
Ken Shinoda
He then asked whether 5% is a high enough yield, and whether it carries enough compensation for holding a long bond, and answered his own question with a new range.
The range he is working with
But I think in this new inflation regime, I wouldn't be surprised if maybe 5% is the middle of the ground and 475 is the lower end and we can get up to 5.25% easily on the 10-year.
Ken Shinoda
4. Why He Avoids 30-Year Bonds
The host raised a competing view from the same morning: Bob Michele of J.P. Morgan had said on Bloomberg Television that he has seen maximum pain in bonds and now sees an opportunity to buy longer-dated debt, mainly in the United States, Japan and Australia. Would 30-year or 20-year yields tempt Shinoda?
The trade that has already worked
Well, I'll just note that being on the short end has worked. That's been the top performing part of the bond market is being in shorter credit that has an attractive spread.
Ken Shinoda
Yields are obviously higher and more attractive than they were, he allowed. His objection is what is left after inflation: a 5% nominal yield against core inflation running at almost three and a half percent is not a high real yield.
His verdict on timing
So, I think it's a little too early.
Ken Shinoda
The deeper argument is about what a bond is for in a portfolio, and he made it plainly.
A hedge does not need upside
I just don't think you need to have that long bond to hope that it goes up 10 or 50% if stocks go down. I mean, you just want something that doesn't go down when stocks go down. You don't really need the upside.
Ken Shinoda
5. Boring Beats Long Bonds
Pushed on where the better balance of risk and reward sits, Shinoda went to mortgage bonds and short investment-grade credit. The host's own premise was that with mortgage rates approaching 7%, nobody refinances unless they have to, which should favor agency mortgage bonds.
Shinoda's answer depended on how they are bought. A passive investor in the mortgage index owns a lot of long-dated bonds; an active manager can buy shorter-dated agency mortgages instead, and spreads have widened.
What new production pays
It's like 120 basis points over Treasuries for kind of new production.
Ken Shinoda
Alongside that he buys short-dated investment-grade credit, and he was specific that he means the genuinely high-rated part, not the bottom of the category: securities rated triple-A, double-A and single-A, at 120, 150 and 175 basis points over the curve. Because the maturities are short, he said, even a widening in spreads does not move the price much.
On the appeal of the trade
Again, I know it's kind of boring, but us bond people, we're kind of boring
Ken Shinoda
DoubleLine has been recommending this defensive position for a while and has not changed it.
Why it works now
And now you can earn a decent amount of rate of return on that front end of the curve.
Ken Shinoda
6. Cracks in Riskier Credit
Asked about economic conditions and what they mean for credit, Shinoda split the market in two. The host noted that the Fed's revisions to its own projections were not dramatic: slightly softer, with decent growth and a relatively stable labor market.
The high-grade picture is clean
Look, growth is strong in the US. Earnings are coming strong on the investment grade side. Looks like there's no problems out there right now. Investment grade spreads are sub 80 still.
Ken Shinoda
Further down, it is not
As you go into the riskier parts of the market, levered loan market, high yield, bank loans, private credit, obviously there's some cracks.
Ken Shinoda
The example he gave of where the cracks are showing is software exposure inside bank loans.
7. Long Tech Twice
The concern Shinoda said is actually on his desk is not a credit-quality one. It is what the corporate bond market is becoming.
The issuance that worries him
And the thing that's really on our minds is that there's a ton of issuance in the debt markets now, especially in the corporate space surrounding tech, AI, and data centers.
Ken Shinoda
That debt is becoming a larger share of the corporate indexes, he said, and a great many investors buy those indexes passively. As the indexes fill with technology and data-center borrowers, they become more correlated with the stock market, because the same investors hold technology equities passively as well.
His question is whether a credit allocation built that way is diversification at all, or the same position twice.
The question he leaves investors with
Do you want to be long that in your credit portfolio as well?
Ken Shinoda
Bonus Insights
The host supplied the framing of the meeting itself and two of the segment's numbers: the dot plot's implied path toward about 4.1% on the funds rate, and the 2-year note at 4.7 and change. The questions also relayed Bob Michele's opposite position from earlier in the day, which is what gave Shinoda something to argue against.
On the name of the old index grouping, Shinoda caught himself mid-sentence, noted that nobody uses the acronym for the large technology stocks any more, and used it anyway for the sake of the point.
Shinoda's bottom line is that the compensation for taking interest-rate risk is still not there: own short-dated agency mortgages and high-grade corporate paper at 120 to 175 basis points over Treasuries, let the 2-year tell you where the Fed is going, and check whether the credit index you own has quietly become another bet on technology.
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