Remy Blaire: The U.S. economy continues to power through higher borrowing costs as well as recent volatility.
Now, surging PMI data, as well as solid consumer spending and an unstoppable AI investment boom, have been driving growth even as 10-year Treasury yields hover near 20-year highs.
Now, while futures markets are pricing in three to four Fed rate hikes through 2027, contrarian allocators argue Wall Street is being far too aggressive.
Well, joining us to break down his asset allocation playbook is Kieran Osborne, who is Chief Investment Officer at Mission Wealth, overseeing $17.5 billion in assets.
Good afternoon, Kieran. Thank you so much for joining us.
Well, as we kick off a new trading week and count down to the final quarter of 2026, we're looking at oil and Treasury yields higher yet once again.
So tell us why you believe Wall Street is overestimating Fed tightening, and why is the Fed's dot plot outlook correct?
Kieran Osborne: Yeah. I think that the market is being overly aggressive with respect to their forward-looking expectations for the Fed hikes.
What we're seeing as of pricing today, the market's pricing in four additional rate hikes through the end of 2027, whereas the dot plot, the Fed's projection for, you know, economic data, is implying that we'll get one more rate hike this year and then no rate hikes in 2027.
And I think, really, the Fed is going to be a little more hesitant to raise rates than many in the market anticipate.
I think also, you know, just simply cycling over these very high oil prices of 2026 into 2027 is actually going to have a moderating effect on inflation moving forward.
And then if we do get some form of resolution with respect to the Middle East, look, I'm no geopolitical analyst. It continues to, you know, extend longer than anticipated.
But if we do get some form of resolution, that may, you know, put downward pressure on oil prices and actually act as a deflationary pressure in 2027, alleviating the need for the Fed to potentially hike rates further.
Remy Blaire: Yeah. And Kieran, I do want to expand on this, especially since we continue to monitor the situation in the Middle East.
And bond investors out there may fear surging energy costs will fuel durable inflation.
But give us your perspective. Depending on what we see, how could this provide a disinflationary tailwind when we're talking about oil prices and a potential resolution here?
Kieran Osborne: Yeah. I mean, if you're going to get the impact on the oil price, it provides you with one large boost to inflation, which we're working through ourselves right now in 2026 with elevated oil prices.
What are we at, WTI at $95 and change?
If we get some form of resolution in the Middle East, what's going to happen is oil prices are likely to fall back down into that $80, maybe even below $80, range.
And with that, that's going to have a natural deflationary pressure on prices because, you know, with falling oil prices, it's going to have downward pressure on overall, not only energy prices, but then end-goods prices as those energy prices and increased transportation prices work their way through to the end goods that we as consumers consume.
And we would expect that if we do get some form of resolution to sort of alleviate the pricing pressure in 2027, again, negating the need potentially for the Fed to have to raise rates further in 2027.
Remy Blaire: Yeah. And I do want to zoom in on what we're seeing in terms of Treasury bonds as well as the flattening yield curve.
Today, we are looking at 10-year yields back above that 5.2% level. Right now, we are looking at the 10-year hovering right around the 5.26% level.
But with high-quality bonds offering mid- to high-single-digit yields, how are you positioning fixed income to lock in total return right now?
Kieran Osborne: Yeah, we're getting a lot more constructive on the outlook for the bond market.
As you point out, you can get mid- to high-single-digit yields on very, very high-credit-quality bonds. This is something we haven't seen in a long, long time.
And what that means, on the one hand, is an attractive yield, an attractive total return.
So the total return on bonds tends to be highly correlated to the starting yield that you're investing into.
And so, you know, some of the bond funds that we're utilizing are A+ rated credits or better and yielding solid high-single-digit yields.
This is just something we haven't seen in many, many years.
So the starting point of the expected total return for bonds is a lot higher today.
But that also provides you with downside protection if interest rates move higher.
And remember the negative correlation between yields and bond prices. If interest rates move a little higher from here, you do have that downside protection and a much higher starting yield.
So we are very, very much more constructive on the outlook for bonds.
We think that, on a go-forward basis, bond total returns for still very high-credit-quality bonds, to be clear, you don't have to go into high-yield bonds, junk bonds, non-investment-grade bonds to get a high-single-digit return.
In today's environment, we would expect solid mid- to high-single-digit returns in very high-quality bond investments.
Remy Blaire: Yeah. And I do want to get your perspective on private credit here, especially as we head into the final months of 2026.
So tell us about floating-rate structures as well as senior-secured positioning and what you're seeing right now and what it means for investors out there.
Kieran Osborne: Yeah. I mean, private credit has been in the news probably for all the wrong reasons earlier in the year.
The reality here is we like private credit a lot. We think this is a great time to be an investor in private credit.
And you hit on a couple of points.
One being it is largely floating-rate in nature. So the loans that are made within private credit are largely all floating-rate loans where they reset on a quarterly basis.
So you only have to wait three months for a reset in the underlying loan, where the coupons are tied to the base rate, which is very highly correlated to where the Fed funds rate moves, plus a set spread.
So again, as the Fed raises rates, they just raised rates 25 basis points. They'll likely raise rates at least one more time this year.
You only have to wait three months for that coupon that you are paid as a lender, as a private credit investor, to reset to a higher interest rate.
And that should act as a natural tailwind in driving increased returns on a go-forward basis.
The other aspect of private credit is you are largely senior secured, so you are top of the capital stack.
Equity holders have to be wiped out before you. Subordinated debt has to be wiped out before you.
You are senior in the capital stack, and therefore you have a lot of downside protection if we do see some deterioration in economic fundamentals.
And just speaking of the economy, you touched on it earlier in this interview. The economy is very, very sound, which means that has really supported the underlying credits of these borrowers that you are lending to as a private credit investor.
So all of which is to say, we are very, very positive on the outlook for private credit.
And on a go-forward basis, we expect it to generate high-single-digit, if not low-double-digit, expected total returns.
Remy Blaire: Yeah. And very quickly here, before I let you go, given the fact that we are counting down to the fourth quarter, that also means that midterms are around the corner.
And historically, stocks do tend to rally in the nine months following midterm elections.
But given the fact that we are seeing concentration in the broader market when it comes to gains, how are you actually balancing seasonality, especially post-election, against some of the tech valuations?
Kieran Osborne: Yeah. I'll give you an interesting stat.
So, in every instance since World War II, the S&P 500 has always been higher nine months after the midterm elections.
It tends to be a very volatile time leading into the midterm elections, heightened uncertainty. We're working through this right now.
But after the midterm elections tends to be a relatively positive time.
So we would be constructive on adding to stock exposures after the midterm elections.
You know, again, you can't argue with history. And if history is a guide for forward-looking returns.
The other aspect I would mention as well, and just pointing to the economic growth continuing to sustain very strong corporate earnings, what we've seen is a broadening in the strength of earnings.
It's not just the tech sector now that has been benefiting from, say, AI and the productivity enhancements that it can gain.
And, you know, we are seeing increased adoption rates throughout the economy.
But more broadly as well, we are seeing increased earnings strength that is much more broad-based across every sector of the economy.
And I think it's a very positive sign on a go-forward basis too.
Remy Blaire: Well, Kieran, it was great having you on the show today.
Thank you so much for joining us, and thank you so much for all of your insights as well as your perspective.
Kieran Osborne: Absolutely.
