Sea of change

Today’s graph compares the today’s US government yield curve to the one of the end of 2021. In 14 months, the world has profoundly changed for investors with major implications. First and foremost, there is a risk free rate again giving a nominal yield and providing a juicy alternative to investors who preferred for years other more risky assets. Also, the discount rates in any DCF has increased substantially lowering the present value of any long distant future cash flows. This affects so called long duration assets like long duration bonds and growth stocks. Finally, the yield curve is inverted which has, at least been in the past, an precursor of an economic slowdown. Our portfolios and investment style at ECP should show some resilience in such an environment.