I came across a pair of interesting articles recently. One was by Sam Lee, a former editor of this newsletter, about why the recent yield curve inversion isn't necessarily an indication of an impending recession. You can view the article here: https://svrn.co/

The second was a longer research piece by Michael Mauboussin of Blue Mountain Capital about why active management has paid off more in the bond market than in the stock market. The paper is available here: https://www.bluemountaincapital.com/wp-content/uploads/2019/04/Looking-for-Easy-Games-in-Bonds.pdf

This paper makes some valid points. The presence of non-economic actors in the market and institutional frictions some investors face (like the requirement to sell when something is downgraded below investment grade) likely create some mispricing that active managers can exploit. But I think the bond market is more efficient than it looks and that it is harder to gain an informational edge in the investment-grade bond market than it is in the stock market.

There is much less uncertainty about what investment-grade bonds' future cash flows will be than there is with stocks. The bond market is more heavily dominated by institutional investors than the stock market, as Mauboussin's data show, and investors who trade in those bonds are typically well-informed, and probably unwilling to leave free money on the table.

Risk-taking tends to explain a lot of active managers' outperformance. After better controlling for risk, fewer active managers outperform. I wrote about this last year: https://www.morningstar.com/articles/889470/raising-the-bar-for-active-bond-managers.html

Best,

Alex 

(Disclaimer: This post should not be intrepreted as an endorsement of the views or services of these organizations, which are not affiliated with Morningstar.)