What to Expect When You’re Expecting…

What to Expect When You’re Expecting…

By Sharif Eid, Partner, Amwal Capital Partners

“It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.”

This quote, often attributed to Mark Twain, feels appropriate as we live through another interesting year in fixed income. Safe havens have proven anything but safe, not least when long-dated treasuries weakened in bouts of risk aversion. Some argue there is a lot of potential for catch-up; relying on the mean-reverting nature and historical patterns of the asset class where returns match inflation over longer periods (which is up 25% this decade so far by the way versus a 25% decline in long-dated treasuries). If you find yourself drawn to that wishful thinking, I recommend rereading the first sentence of this memo. Perhaps the best part of that "quote" is there’s no real evidence Twain even said it — which bizarrely strengthens the point.

Beyond treasuries, we are now seeing unusual behavior in the dollar as well — also often seen as a reliable hedge.

This raises the question: What should we expect when we’re expecting a downturn?

Conventional thinking would suggest a familiar pattern: the Fed steps in, yields fall, and the dollar strengthens. But these relationships are no longer as dependable as they once were. And as we’ve learned time and again, the most dangerous risk is the one you think you’ve already accounted for.

1. Inflation expectations may limit the Fed’s response.
   The rise in the University of Michigan’s long-run inflation expectations is cause for concern. That puts the Fed in a difficult position — one where easing may not come as quickly or as aggressively as markets hope.
2. Treasuries have failed to provide diversification.
   For several years now, the traditional inverse correlation between stocks and bonds has weakened. The notion of Treasuries as a portfolio hedge deserves renewed scrutiny.
3. The dollar is no longer acting as a reliable offset.

Historically viewed as a safe-haven asset, the dollar’s recent behavior suggests its hedging properties may be diminishing too.

In environments like this, clarity often comes not from bold predictions, but from humility about what we don’t know — and from revisiting assumptions that once felt foundational.

Against that backdrop, we continue to focus on generating returns without relying on directional market calls. Specifically, we believe there’s real merit in carry without beta — which, in our case, means high-yield exposure through uncorrelated, overcollateralized, and idiosyncratic private credit. We are particularly excited about private credit in the GCC; which is at an early stage and offers a wealth of untapped opportunities in economies undergoing impressive reform and consistent growth.

As always, the key isn’t just to expect the unexpected — but to prepare for it in ways that don’t depend on being exactly right.