MARK RIEPE: Welcome to Schwab Market Talk, and thanks for your time today. It’s April 21^st, 2026. The information provided here is for general information purposes only, and all expressions of opinion are subject to change without notice in reaction to shifting market conditions. I’m Mark Riepe, and I head up to Schwab Center for Financial Research, and I’ll be your moderator today.

We do market events… or market talk events, we do these monthly, but twice a year we do extra fixed income-focused events, and this is one of those. And we’ll start out by starting talking about some of the top themes that are on the minds of our strategists. We’ll do that for about 30 minutes, and then we’ll start taking live questions. If you would like to ask a question, just type the question into the Q&A box on your screen and click submit. And you can do that at any time during today’s event. For continuing education credits, live attendance qualifies for one hour of CFP and/or CIMA continuing education credit if you watch for a minimum of 50 minutes. That means you aren’t eligible for CE credits if you only watch the replay. To get CFP credit, please enter your CFP ID Number in the window that should be on your screen right now. And then Schwab will submit your credit requests to the CFP Board on your behalf. In case you don’t see it, don’t worry, you should see it again towards the end of the webcast. For CIMA credit, you’ll have to submit that on your own. Approximately 50 minutes after the show is started the directions for how to submit it can be found in the CIMA widget that will be appearing at the bottom of your screen. Finally, we have one more option for people needing proof of attendance. It’s a widget that’s called the Certificate of Attendance, and it’s found at the bottom of your screen in the Widget dock. That certificate will be available after 50 minutes of attendance. Last thing before our speakers join us, I want to call your attention to a couple of resources on the right-hand side of the webcast console. We’ve got links to our latest fixed income insights and commentary, as well as some information from Wasmer Schroeder about the Wasmer Schroeder Strategies. So let’s get started.

Our speakers today are Collin Martin, a managing director here at Schwab, and he’s our Head of Fixed Income Research and Strategy; Cooper Howard, he’s the Director of Fixed Income Research and Strategy; and Ken Pennington, who is a director in our group, and he’s the Director of Alternative Investments Research.

And Collin, we’re going to start out with you. How are you thinking about the Fed right now, particularly how they’re thinking about their policy moves in light of the war with Iran?

COLLIN MARTIN: Yeah. Hi, Mark. Hi, everyone. We have shifted our views a little bit since the war began. Coming into the year, we thought the Fed would cut rates one or two times, mainly based on inflation that was still pretty high and sticky, but on the expectation that it would gradually decline. We were a little bit less enthusiastic about the number of rate cuts than the market was pricing in. And I try to show this on this chart here, where this is just the expected path of Fed policy from the Fed Funds Futures market. So that dark-blue line is from the end of February, and the markets were pricing at about two to three cuts by the end of the year. It has since flattened out a little bit, and that’s in line with our view. We think the Fed will likely be on an extended pause from here. So they’ll hold rates steady for several meetings, mainly because inflation is expected to increase given the elevated oil prices we’ve seen. We’ve already started to see that flow through in last month’s CPI, which you can see here. I mean, CPI and most inflation indicators have been above the Fed’s 2% target for about five years now. And with them expected to increase, we just think it’s really difficult for the Fed to even think about easing policy in a situation like that. Even core inflation indicators or core inflation readings that exclude volatile food and energy prices, they’re still above the Fed’s target. Next week, we’ll get the March reading of the PCE, or Personal Consumption Expenditures. And even on a core basis, that’s expected to rise by 3.2% year-over-year. So moving in the wrong direction allows the Fed to kind of wait and see, take their time before they decide to do something by the end of the year. And we think they’ll probably maybe cut rates once or not cut rates at all, depending on how that inflation outlook plays out.

We think the bar for a hike is very high. We’ve seen expectations for a potential hike dial back a little bit right now, and the Fed Funds Futures is pointing to a cut as being the next move. But this chart looks at a diffusion index, so number of participants seeing a risk versus not seeing a risk of the unemployment rate rising, of PCE inflation rising, or GDP growth slowing. And this comes out with every other meeting from the Fed. It’s in the document that has the dot-plot, the updated Summary of Economic Projections. But this just shows that there are two-sided risks here. So if you look at the top, the same number of participants see upside risk to inflation and upside risk to the unemployment rate. So I think they’re cognizant of the risks that are out there, the potential negative consequences from an extended conflict and what oil prices can do to the consumer.

So I think that puts the bar pretty high for a hike. And if we start to see maybe some cracks forming in the labor market or potential slowdown, if the higher oil prices and higher gas prices are weighing on consumers, that could result in them lowering rates. But for now, the economy has been pretty resilient, and the Fed can just wait and see.

Mark, it looks like you’re muted.

MARK: Sorry about that. Collin, treasury yields are still up for the most part since the end of February. Do you see them moving higher at this point or lower or just staying in a trading range?

COLLIN: We think they’ll probably stay in a range. We think they’ll probably hover in that 4- to 4-1/2% area that they’ve generally held for a year or so. That was our outlook coming into the year, where sticky inflation, fiscal concerns, and developments in the global bond markets would all probably keep yields in this range, and they’re all still very much in effect right now.

If we look at what is driving the change in treasury yields since the conflict began, it’s mostly changes to expectations about the Fed Funds Rate. So we kind of break down different components of the 10-year treasury yield in this chart. So you can see that the second column from the left, that’s how much the 10-year has changed since the end of February, up 32 basis points. If you look to the right, breakeven inflation rates haven’t picked up too much, the term premium hasn’t picked up too much. Most of the move is just based on expectations for a flatter path of Fed policy over the near-term.

If we look at risks to the upside or the downside, I actually see more risks to the upside, but it’s not like we expect them going significantly higher than, say, 4-1/2% or even north of 5%, or anything like that. But given that inflation is still elevated, given that fiscal concerns are still very much here, we’ve heard proposed budgets for defense next year expected to go up by I think a few hundred-billion. That might continue to weigh on the market if we need to continue to issue more treasury issuance to fund that.

But what’s been a key driver lately is really just the price of oil. That’s flowed into Fed expectations, but also the direction of 10-year treasury yields. You can see on the left here, once the price of oil spiked, we saw treasury yields spike as well. And if you look at a 30-day rolling correlation, it picked up once the conflict began.

So for the short run, we’ll probably see ups and downs based on good or bad news, with a potential resolution in the Middle East, but we think the 10-year treasury yield will probably stay put. And we think it will take a little while, or we probably need to see slower economic growth or a potential recession to see it move below 4% anytime soon.

MARK: So Collin, with that increase in yields that you were just discussing, where are you seeing opportunities right now in terms of the taxable part of the bond universe?

COLLIN: Yeah, we see opportunities in high-quality bond investments. We have more of a neutral outlook on the riskier parts of the market. But I like to show this chart here that kind of lays out the landscape of different types of fixed income investments. We even included municipal bonds here. But we show the five-year range of where these various broad indices have been, and where we are right now. And if you look at kind of the right columns, so investment-grade corporates and to the right, those are more of the high-quality bond investments. You can see that they’re towards the upper end of their five-year range. They’re not at their peaks because yields were higher when the Fed was at its peak rate. But if we look at where they are compared to the past five years or even 15 years, we still see a lot of opportunity out there for investors and your clients who are probably looking for maybe higher returns, higher income without taking too much risk. And we think that’s attractive.

To show it more of a time series for investment-grade corporate bonds, which is a focus in my world, the average yield of the Bloomberg US Corporate Bond Index is back above 5%. Now, again, it’s off the highs from the past few years, but if we kind of go back 15 years or more, we’re still at levels that investors couldn’t get, couldn’t earn, basically from 29 to early 2022. And I think it’s important to kind of remind your clients that it’s easy to look back over the past few months or years when they were at their peak, but we still think these are at pretty attractive levels.

From a credit quality standpoint, we’re not interested in taking too much credit risk, mainly because there’s a lot of uncertainty right now, and the extra yield you’re earning is relatively low. So whether it’s with investment-grade corporate bonds, whether it’s high-yield corporate bonds, that spread is well below historical averages. And even though the economy has been holding up pretty well, the labor market has stabilized, there are risks out there, especially the risk of oil and gas prices staying elevated for a while, taking money out of our wallets that could potentially be spent elsewhere.

So the risk-reward proposition doesn’t look super attractive to take on lower-rated bonds right now, but when we look at treasuries, the ag in general, investment-grade corporates, we still think the opportunity is there from an absolute yield standpoint.

MARK: Collin, let’s talk a little bit, drill down a little bit more on sort of the riskier end of the spectrum. You were talking a little bit about high-yield there. What about things like preferred securities?

COLLIN: Yeah, so there are a number of riskier bond investments or bond-like investments out there, and we’re not saying not to take risks. And one area that we see a potential opportunity are preferred securities. So hybrid investment, they have characteristics of both stocks and bonds, and they have both high interest rate risk because their maturities are long or they have no maturities at all, and they tend to have more credit risk also. Even though the average credit ratings tend to be in the low triple-B or high double-B area, they rank below traditional bonds. They tend to be subordinated. So a little bit more credit risk than your traditional corporate bond. But what we like about them are the yields they offer. We’ve seen preferred yields move up a little bit more compared to the move we’ve seen with the 10-year treasury yield or even longer-term corporate bonds. So we’ve seen more of a move up relative to other investments that have more interest rate risk or higher durations. And on average, you can get yields in the, call it 6- to 6-1/2% area. And we’re comfortable with the credit risk there. Even though they rank a little bit below corporate bonds, a lot of preferreds tend to be issued by large financial institutions, large banks whose parents have investment-grade credit ratings, and we think their credit fundamentals are relatively strong.

There can also be tax advantages, Mark, when considering preferred securities. Not all preferreds offer tax advantages. I want to make that clear, but a lot of preferred securities, specifically a lot of preferred stocks, are taxed at the qualified dividend, or they pay qualified dividends that are taxed at capital gains tax rates, as opposed to traditional income tax rates. And if you compare preferreds on an after tax basis, if we’re looking at specifically the top tax bracket on this chart, so we have a pre-tax yield of high-yield preferreds and investment-grade corporates, and then if you have clients in that top 37% tax bracket, we look at what those yields look like on an after tax basis. And you can see a nice yield advantage for preferreds relative to high-yield bonds with slightly different risk profiles because the credit ratings tend to be a little bit higher. Although again, as I mentioned before, they tend to be subordinated to traditional corporate bonds.

I just want to touch on high-yield bonds real quickly because we’re going to have Ken come in to talk about the private credit markets, and trends we’re seeing there. We see more risks with the broadly syndicated loan market, or the bank loan or senior loan market relative to the high-yield bond market. So bank loans are a type of leveraged lending. They have floating coupon rates. They’re a little bit different than high-yield corporate bonds, but a key difference is their credit ratings tend to be lower. You can see here, I look at the double-B, single-B and triple-C breakdown of the high-yield index and the bank loan index. Bank loan index, much lower-rated, so we’re a little bit more worried there. And if you look at the high-yield index, though, about 57% of the Bloomberg High-Yield Corporate Bond Index is rated double-B, so the higher end of that junk or high-yield spectrum.

So we’re more neutral on high-yield bonds, more cautious and see bank loans as less favorable because we think potential spillover from private credit if they remain in the headlines and we see defaults pick up, we think they’re more likely to spill over to the bank loan market.

MARK: All right, thank you. Thank you, Collin.

Cooper, why don’t we bring you into the conversation? I want to start out with one of the questions we got during the registration process, and that was around TIPS. And given the somewhat higher inflation that Collin was documenting in his slides, how should investors think about TIPS as a way of protecting themselves?

COOPER HOWARD: Of course. Well, thanks for having me on, Mark, and thanks, everybody, for dialing in.

I do think that TIPS have a place in a portfolio in exchange for nominal treasuries. And I’d highlight that they are in exchange for nominal treasuries because yes, Tips are still treasury inflation… or treasury bonds, so there is a little bit of a duration component to them. But if we look at where the opportunities are within the treasury… or the TIPS market, I do think that it’s on longer-term TIPS, rather than shorter-term TIPS. Part of the reason for that, Mark, is that we have seen breakeven rates on the very short end of the yield curve move up quite a bit. You can see that here as we’re displaying with the five-year treasury inflation breakeven rates, as well as 10-year treasury breakeven rates. So that hurdle rate for longer-term isn’t as high as that hurdle rate is for shorter-term. So that’s where I really think the opportunity is.

And like Collin had mentioned, we do think that inflation likely is going to remain sticky. It may have some potentially more upside from here, depending on how the situation with Iran develops, how oil prices develop, and kind of the situation with the Strait of Hormuz. One thing I also would highlight, and I mentioned this earlier, is that we do think that they should be in place of nominal treasuries because ultimately TIPS still are bonds. Just to highlight an example of when clients can actually lose money in this even though inflation is moving higher, because TIPS aren’t a perfect hedge against inflation is 2022. And in that environment, Mark, we actually saw CPI peak at 9%. However, the total return for an index of TIPS was down about 11% for that year.

So if your investors and your clients are using TIPS funds as an alternative to try to hedge against inflation, understand that it’s not a perfect hedge against inflation. However, we do think that it can have an appropriate place in a portfolio to have some sort of inflation component to it.

MARK: Thanks, Cooper. Collin was talking about a lot of the situations that are happening in the Middle East. So I wanted to get your thoughts on global bonds and the dollar, and how that has been evolving and changing with all of the conflicts that we’re seeing.

COOPER: Yeah, so in terms of kind of our house view right now, Mark, we do have a slightly unfavorable view on international developed bonds that are hedged. And that’s a key because it does come down to the dollar. In terms of unhedged position right now, we’ve seen a lot of choppiness with the dollar so far, especially since the situation with Iran started, and I do think that that choppiness is likely to continue. So you can make both the bull case and the bear case of the direction of the dollar.

If you look at the bull case, really the bull case is that we do think that the Fed is likely to be on hold for an extended period of time, and higher rates support capital flows, and that’s supportive of the US dollar. Also, if we look at the situation with Iran, the US tends to be an oil exporter. So if oil remains elevated, that’s likely to put more pressure on international countries, rather than the US. So we do think that growth within the US, it still continues to hum along okay, and we have a little bit more resilience against higher oil prices than the rest of the world.

Now, the bearish case, however, for the US dollar, and one that we think is a reason why we’re going to continue with this choppiness that we’ve already seen, is we’re still continuing to run high deficits, and it doesn’t look like those deficits are going away anytime soon. There doesn’t appear to be, on both sides of the aisle, really much impetus to try to tackle higher deficits. A second reason is that we do think that really there’s been just overall diversification away from the US dollar.

So we think that’s kind of a longer-term trend that is likely to continue going on. However, those push pull forces against the dollar in the near-term probably are going to keep things a little bit choppy.

MARK: Thanks, Cooper. We’re going to get to Ken Pennington to talk about private credit here in a second, but I wanted to wrap things up with you, Cooper, with a few questions about municipal bonds. So how are you thinking about the relative value between municipal bonds and treasuries kind of across the yield curve? How do you compare it to… think about it compared to corporates, and then where do you think the best opportunities are on specific spots on the yield curve?

COOPER: Yeah, so relative to corporate bonds, we do think that they’re slightly attractive right now. I’d key on the ‘slightly’ side of things. So the chart on the left-hand side, really it just displays what is the after-tax yield for an index of municipal bonds relative to corporate bonds. This is something that you might be very familiar with or have seen in many other publications. However, I’d highlight the chart on the right-hand side, Mark. I think that this does a better job of illustrating how that attractiveness of munis relative to corporates changes over time. And this is called the breakeven tax rate. And really what this is, is just what is the tax rate that an investor would need to be in for the after-tax yield on a corporate bond to be the equivalent of that on a municipal bond. And right now that stands at about 28% relative to its longer-term average of about 33%. As you can see, it has been moving up, meaning that munis are less attractive relative to corporates than they have been, but compared to the longer-term average, we still think that they are relatively attractive. Also, keep in mind that this isn’t an apples-to-apples comparison, and in fact, most of the muni market tends to be much higher rate credit quality, much higher rated than that of the corporate bond market.

Now, looking at where the opportunities are within the yield curve, one of the illustrations I like to pull up is the muni-to-treasury ratio, and that’s what’s being displayed here. Really all that this is, is what is the ratio between the yield on a triple-A-rated municipal bond compared to that of a treasury before adjusting for taxes. And if you notice, the inside of 10 years, those muni-to-treasury ratios are near the lowest that they have been over the past year, and also kind of near lower portions that they have been compared to their longer term average.

Now, where the more attractive parts of the yield curve are, are further out the yield curve. So we’re highlighting the 30-year example here. Now, I’m not suggesting that every investor go out and buy 30-year municipal bonds. Obviously, that’s not too appropriate to many individuals, you’re taking on a lot of duration risk, but I do want to use it to highlight that higher relative valuations are further out the yield curve.

So what we’ve been suggesting to some of our retail Schwab clients is using something such as a ladder with an average duration right about benchmark, about six years or so. And because it is an average duration of about six years, that gives those investors the opportunity to have some shorter-term bonds, but also some longer-term bonds where the more attractive valuations are.

MARK: Last question for you, Cooper. Collin described the economy as being resilient. I think that was a fair description. You’ve documented in the past the improvement in the balance sheets of state and local governments. Are you starting to see, though, any cracks in the credit quality at the muni level that investors need to be aware of?

COOPER: Generally speaking, Mark, we really aren’t, because like you had mentioned, if we do look at the amount of money that states have really built up in their rainy day funds, which is displayed here, it’s been pretty good so far. So that gives them a lot of a runway that they can go on if the economy does begin to slow and if tax revenues begin to pull back. So this is looking at the number of days that each… that a state could run solely off of their rainy day funds. And if you look at the dark-blue lines, it tended to be prior to the pandemic that most states could only operate up to a hundred days. Since the pandemic, those lighter-blue lines have occurred. Many states have built up that, and can run solely off of their rainy day funds for much longer than pre-pandemic.

The other piece that I’d highlight is that this is really translated into higher credit ratings overall within the muni market. You can see that on the next slide. So in terms of the number of ratings’ upgrades relative to downgrades, we look at that as just a simple ratio. So if it’s above 50%, that dashed yellow line and in green here, what that means is that there have been more ratings overall compared to more credit downgrades.

So as a whole, the muni market has been getting stronger in terms of credit quality. And we think that given that it’s on strong standing point right now, it can weather the storm of if we do experience a significant slowdown in the economy.

Now that’s not to say that there aren’t pockets of risk in the market. Kind of the areas that we would be a little bit more concerned of or take on a little bit, maybe shine a magnifying glass if you’re investing in those, would be things like smaller private education issuers that tend to be a little bit on the lower investment-grade rated spectrum. Also things such as hospitals. We would be a little bit more cautious in that, given everything that’s going on with Medicare and Medicaid. And then areas with a little bit weaker demographics. Overall, those are going to tend to be lower-rated issuers, and we think that we would be a little bit more cautious on something like that as well.

MARK: Great. Thank you. Thank you, Cooper.

Ken, we’re going to wrap up things here with you, and then we’ll start taking live questions. So Ken, I guess I want to start out with kind of a big picture question. How did private credit as an asset class, one of the hottest asset classes a few years ago, now it’s in a state where very little money is coming in and a lot of people are trying to get out. So tell us what is going on there.

COLLIN: Hey, Ken, it looks like you might be muted.

KEN PENNINGTON: Can you hear me now?

COLLIN: Yes.

MARK: Yeah, we can hear you.

KEN: Okay. So I’ll just say that sentiment regarding private credit has clearly changed dramatically over the last eight or nine months. And I think it really started in September of 2025, with the first brands and the tricolor bankruptcies, and then the subsequent comments by Jamie Dimon about cockroaches in private credit. and making reference to lax underwriting standards. I think as you move further into 2025, towards the end of 2025, you really began to see headlines about recession-level default rates in private credits. Going into 2026, the headline figure was reported as high as 9%. And then I think it ultimately culminated in the questions about artificial intelligence, and the havoc that it could potentially wreak on the business models of software companies, and software is one of the largest industries in direct lending.

I think a second factor is really the growth of assets in direct lending, and where that growth has come from. And if you go back as little as five years ago, direct lending, private credit direct lending was really an institutional asset class, there was very little retail money in the space, and the growth in that asset class has been… or in that strategy has been substantial, and the vast majority of that money has come from retail.

So for retail investors, private credit direct lending is really a new asset class. And I think if you combine the fact that you just have this relentless onslaught of negative headlines over the last eight to nine months, and the fact that you have an unfamiliar asset class, a new asset class that retail investors are invested in, it’s not really surprising to me that retail investors have really adopted this shoot first, ask questions later, which has led to the very high levels of redemption requests that we’ve seen at the end of the first quarter of 2026.

MARK: So Ken, as you just mentioned, we’ve seen the spike in redemptions, but when you think about the asset class overall and the fundamentals of the asset class, do you think direct lending, do you think that’s in trouble or is this more about just, as you said, shoot first, ask questions later, it’s not really reflecting an overreaction, if you will, to some of the fundamentals of direct lending?

KEN: Yeah, I think it’s the right question to ask. I mean, to be clear, we currently view what is going on in direct lending as a liquidity issue, and not a solvency issue. I do think it’s really important to point out that the recession-level elevated default rates that have been in the headlines for private credit are not directly comparable to default rates that are reported for the public markets. And in fact, had those default rates been reported on an apples-to-apples basis with public markets, the default rate would really have been more in the 1-1/1% range, so hardly a default rate that is problematic at this point.

And I think if you actually look at the underlying financial metrics of the companies, most companies are reasonably healthy, although there certainly are pockets of stress. I think if you look at earnings, earnings continue to increase. Earning rates of growth have clearly slowed down relative to what you saw in late 2023 into 2024, but earnings growth continues to be positive. And I think if you then also look at some of the financial ratios, which are important to look at in direct lending private credit, interest coverage ratios after bottoming out in early ‘24 have actually started to improve primarily on the back of earnings growth. And if you think about some of the other ratios, financial ratios which are important, such as loans-to-value, loans-to-value have stayed relatively constant. Leverage ratios have also stayed relatively constant. And I think there’s no question that the rapid interest rate increases from 2022 into 2023 have left companies with less of a financial cushion, but I don’t think we’re seeing anything in the financial metrics that should dictate that investors should be stampeding for the exit.

MARK: So Ken, last question, and then we’ll start taking the live questions. In fact, a question just came in that I think is a great one. ‘Do you think the risk in private credit will be a big problem in the future?’

KEN: Wow. Yep, perfect question to ask. I think it really depends on two things. I think number one, it really depends on the economy. If the economy continues to stay reasonably strong, and companies continue to perform and earnings continue to increase even at very modest levels, companies they’re going to be able to make their interest payments. I think on the other hand, if the economy falls into a recession, that is going to be problematic. These are smaller companies. They’re less resilient. They do have less of a financial cushion. And I think if the economy does fall into recession, then you will start to see real default rates in private credit that are recession levels, and investors are obviously going to take losses.

I think the real wild card is software. If we do see a situation where artificial intelligence does begin to wreak havoc with these business models, there are clearly going to be defaults in software, and investors are clearly going to take losses. And since software is one of the biggest industries in private credit direct lending, I think that those losses would hit most funds.

MARK: Thank you, Ken.

So let’s start taking some live questions here. I’m just looking at ones as they’re coming in here. Why don’t we go with this one? This one’s for you, Collin. ‘Any concerns about the potential for the Fed to raise rates?’ You talked about that a little bit, but ‘Would Warsh as the new Fed share impact the likelihood of that happening?’

COLLIN: So on the potential for the Fed to raise rates, we think it’s a very low probability right now. Inflation is expected to increase, but mostly due to higher oil and gas prices. There’s not much the Fed can do about that. The Fed will pay attention to inflation expectations to make sure that that risk doesn’t flow into inflation expectations, and therefore resulting in some sort of self-fulfilling prophecy. For now, we haven’t really seen that. Short-term, like TIPS breakeven rates, for example, have picked up, but that’s logical given that inflation is supposed to increase over the long run… or the short run, rather, but if you look at intermediate- and long-term inflation expectations, you could argue that they are still relatively well anchored. So the Fed is going to focus more on that. I think the bar for a rate hike is really high.

For Warsh… you know, so I don’t think that should play much into Warsh’s approach, but there’s a few things we’re looking at with Warsh as a potential Fed chair. But just to kind of sum it up, we don’t expect him as chair, assuming that he gets confirmed… you know, he is going through the hearings right now, but Senator Tom Tillis has made it clear he is not going to actually push forward the vote until the investigation into Powell is dropped or resolved. But we think at some point Warsh will probably get confirmed for whatever plays out with the current investigation. But our math doesn’t change because Warsh is really just one committee member, arguably the most influential of all FOMC members, but he’s just one vote. And in an environment where inflation is just too high, if he comes in with views… and he is actually doing his hearing right now, so after this, we can go see what he has been saying about the state of monetary policy, and what he expects to do down the road. But if he were to come in with views that the Fed should be cutting rates, I think there would be very little buy-in from other committee members, especially because the seat he’ll be filling is not Powell’s seat, it’s Stephen Miron. And Stephen Miron is arguably the most dovish committee member right now. So he would just be coming in and replacing another dovish committee member.

One thing we will be paying attention that plays into the bond markets and could change the direction of yields is how he approaches the balance sheet. Warsh has long been a proponent of a smaller balance sheet. He wasn’t a fan of all the QE done after the financial crisis. And so it’s likely he has plans to try to shrink that. That would likely be difficult right now in a vacuum because if they were to reduce their holdings, that could put pressure on intermediate- and long-term yields, which is obviously not what Warsh likely wants or what the administration wants. And we would like to see likely a change in regulations and how the bank… you know, where their reserves go and things like that. But that’s something we’re going to pay attention to.

And then just final, one little fun fact, I don’t know if Warsh will be dissenting at upcoming committee meetings if and when he gets confirmed, but you would have to go back to, I believe, 1939 to find a Fed chair who actually dissented against an opinion. So it’s going to be really interesting, if he does want to lower rates, how he votes with the committee, if most people aren’t in favor of that.

MARK: Right. Thank you. Thank you, Collin.

Ken, this one is for you. Let me pull it up here. ‘Why is the default rate in private credit not comparable to the public debt calculation?’

KEN: What I’m referring to here is the default rate of over 9% that was widely reported in the mainstream financial media for all of 2025. And the difference between that default rate and the public fixed income market default rate is that that default rate includes things like pick conversions, it includes things like maturity extensions, it includes things like covenant holidays, which may or may not be signs of stress and could ultimately lead to default, but are not currently conditions of default. And so that’s why I do that differentiation between the strict public market definition compared to the definition that was used to calculate that default rate, or what was reported as a default rate of over 9%.

COLLIN: Hey, Mark, if you don’t mind, can I chime in, and talk a little bit about the public markets too, because this is something that we’ve been hearing about for a little while. Can you hear me okay, Mark?

MARK: I can hear you just fine.

COLLIN: Okay, great. Default rates have been in the public market. So it’s important to differentiate public markets and private markets. But in the public markets, default rates have been somewhat elevated for a number of years now. And I say somewhat elevated because they’re actually just closer to their long-term average. So not at levels that are super concerning, mainly because companies do default, bonds do default. I mean, that’s why they offer the higher yields that they offer. But we don’t look just at a bankruptcy or a Chapter 7 or a Chapter 11. As Ken alluded to, distressed exchanges can play into that because it’s essentially as a bond owner or a loan owner or holder, you’re not getting what was promised. So that plays into default calculations.

Now, Moody’s and S&P both do some studies about companies who do distressed exchanges and then they end up kind of defaulting down the road. So a lot of times it tends to be just kind of kicking the can. So even though it might not be a straight, say, bankruptcy or liquidation, it does suggest there’s some challenges there. But when we look at the public markets, yeah, defaults are elevated, but not at levels that are too concerning, not at levels we saw during the financial crisis, or peak COVID, or anything like that. And they’ve actually been trending a little bit lower. But that comes with the territory. There’s a reason that any of these investments offer higher yields. It’s because some of the issuers might face some challenges.

MARK: Great. Thank you. Thank you, Collin.

Cooper, this one is for you. ‘Can Cooper comment on the Los Angeles Department of Water and Power?’

COOPER: Yes, I can comment on it. So I’ll comment a couple different ways because we have been getting some questions from our clients about the Los Angeles Department of Water and Power. You might hear me referred as LADWAP, which is the acronym for it. But obviously they were directly related to the fire situation in the Palisades area, the Pacific Palisades area. And California is a little bit unique in the sense that they have inverse condemnation. So if there is a wildfire, even if it is caused by an act of God or some natural phenomenon, that utility may still be found liable for it, and therefore litigation and lawsuits can be brought against them. That’s unique for California. It is a very low bar to bring a lawsuit in California. I’m obviously not a lawyer, but that doesn’t apply to many other states in the country.

So what happened recently is that Moody’s and Standard & Poor’s have recently downgraded both the water bonds and both the sewer bonds. I’d highlight, though, that they are still very much investment-grade-rated, so they are strongly investment-grade-rated. We’re obviously not credit analysts for LADWAP, so we can’t comment what is going to happen in the future, but I do think that it’s a broader question also of how should investors navigate through climate risks or climate change within their portfolio.

And one specific example that I’d give, this sounds very easy, but it is just diversify by different types of issuer and diversify geographically. We often think of diversification as different asset classes in other parts of the market, but in the muni market, diversifying geographically really makes sense. We usually recommend that investors buy at least 10 different issuers with differing credit risks. If many of those issuers are in similar areas, having differing credit risks can be very difficult. So that’s kind of the outlook that we would suggest of how to navigate through climate change and climate shocks in a portfolio.

MARK: Thank you. Thank you, Cooper.

Collin, we’ve got a question here. I’m going to send it to you. It’s kind of a long one, so bear with me. ‘What is a good way to invest fixed income for clients that will provide a nice yield, but also not have the risk that bond funds typically have, prices dropping in the future if interest rates move higher in the future? For example, do bond ETFs with a specific year maturity help?’

COLLIN: Yeah, that’s a good one. This is the age old question of what is the best way, or is there a preferred way to invest in the bond market? I don’t necessarily have the perfect answer there because if you compare a fund versus a portfolio of individual bonds, technically they’re very similar because a fund, if the makeup and characteristics are the same and interest rates rise, the value of the fund would likely fall and the value of the individual bond prices would fall also.

So the way I like to frame it when talking with individual investors or if you’re talking with your clients is how they deal with potential price fluctuations because I think it almost becomes a behavioral or psychological approach. With a portfolio of individual bonds, they’re subject to the same inverse relationship and prices and yields that a mutual fund or ETF would be subject to, but you can see the par value, a maturity date. So you can kind of look through those temporary price declines and be highly confident, assuming that they’re high quality bonds, that they will be repaid at some point down the road. You don’t get to really look through that decline in a mutual fund or ETF because you don’t know if that value will necessarily move back up because if interest rates rise and then some time has passed after the value of the fund has declined, the portfolio manager, even if it’s a passive fund, will be managing the portfolio accordingly. And if it has to sell some of those issues based on a tactical reason, or even if it’s just mandating based on its duration benchmark, they will likely have to sell at that value and make that temporary loss permanent, and then reinvest a smaller number of proceeds. So if you’re in a mutual fund or ETF, you might not necessarily get the rebound in prices over time that a portfolio of individual bonds might offer. What you will get with the fund if interest rates rise and the value falls is over time you should be rewarded with higher income payments because the portfolio manager as it manages in that fluctuating interest rate environment is taking advantage of that, where your portfolio of individual bonds usually has fixed rates and won’t be moving up or down. So it’s really how you deal or how your clients deal with price fluctuations, and if you want some sort of predictable value at maturity, because that’s what a portfolio of individual bonds would be able to offer versus something like a mutual fund or ETF.

And then I think Mark, the end of the question was… I think you asked about a bond ETF with a specific maturity year. So there are a few different types of options there from different asset managers where they’re defined maturity ETFs. There are pros and cons with that. What we’ve found is that when you invest in an ETF like that and you see what the stated yield is at the time of issuance or when you choose to invest, your annualized total return can vary a little bit based on that because a lot of times the portfolio managers… let’s say it’s an ETF with a five-year maturity. A lot of times all the bonds don’t necessarily have five years to maturity. They might have four, they might have six, so the manager still needs to kind of manage a little bit in there, and the total return might be a little bit different than what you expected. It could be close, but it might be a little bit different.

One thing to consider, and I think this is important, is for a lot of those sort of strategies, there tends to be some sort of decision that with a certain time to maturity, they stop reinvesting the bonds and they tend to sit in a short-term investment. That can be good if short-term yields are higher than when you invested in the bonds to begin with, but it could be a detriment to the performance if the short-term yields like a money market fund or treasury bills are lower than the stated yield when you purchase. So just something to consider if you’re looking at those target maturity ETFs.

MARK: Thank you. Thank you, Collin.

Cooper, this one is for you. ‘Issuance of municipal bonds is likely going to be elevated this year. Does that pose a risk to the market? How should investors think about the supply dynamics in the municipal bond market right now?’

COOPER: I don’t think that it poses a direct risk to the muni market, but it is definitely a big story to watch in terms of total returns and how they develop. Now, issuance, that was at a record level last year. We actually saw above $500 billion of issuance in the muni market. That was the highest that it’s ever been. And if you look at the amount of issuance so far this year compared to the exact same time as last year, it is elevated. It is even higher this year than it was last year. So how that impacts the muni market is it comes down to total returns. So there is a supply and demand dynamic in the market. And if we see a significant amount of supply without that significant amount of demand in the market, that can weigh on total returns. And we actually saw that last year to where even though munis posted a positive total return, Mark, they were among the worst performing major fixed income asset classes that we track.

Now, this year, the story has been a little bit flipped. Munis are actually leading the pack, and are performing very well in terms of other fixed income asset classes.

So I think really what it’s going to come down to is the amount of demand that’s coming into the market. So far demand has fairly been strong. We did see one week of outflows for mutual funds and ETFs, but in my view, if we continue to see no major credit concerns with the muni market, high attractive absolute yields, especially when you adjust for taxes. And then the third piece about it is if we do see relative valuations continue to be at decent-ish levels, yes, we are a little bit on the richer side, and we also see total returns continue to be relatively positive. I think that that’s going to continue to be supportive of demand and should keep total returns going forward supportive.

So I do think that the supply-demand dynamic is very much something to watch going forward, but yeah, I don’t think that it’s a cause for concern… a major cause for concern, I should say, in the market.

MARK: Thanks. Thanks, Cooper.

Collin, this one is for you. ‘Are convertibles on your buy list?’

COLLIN: On my buy list. Well, we don’t focus too much on convertibles for one main reason, is that they tend to act more like stocks than bonds. If we look at convertibles, at least at an index level, you tend to see a much higher correlation with the equity market than the bond market. So I think that’s something to consider. Even though they’re often convertible bonds, they tend to act more like stocks. A few things that I think are important when discussing them with clients, usually when companies issue convertible bonds, they tend to be kind of early stage companies, maybe not a lot of earnings, and the benefits could be potential equity growth down the road. So they tend to offer lower yields. So a lot of times it’s like the lower yield, which can potentially be offset with equity growth should that happen. So if you’re looking at convertibles from an income standpoint, usually the income is very low compared to other high-quality bond investments. And they usually tend to be pretty low-rated companies. You don’t tend to see big investment-grade issuers issue converts. They’re usually low investment-grade, a lot of times junk-rated, or potentially not rated at all. So it is a riskier investment. So those are the key considerations if you’re considering where they should fit in a portfolio. We think they fit more under the equity sleeve than the fixed income sleeve.

MARK: Thank you, Collin. I’m going to send this one to you as well. ‘There’s been talk of curve steepening lately. Is that good steepening or bad steepening?’

COLLIN: Good or bad steepening. Well, coming into the year, we thought the yield curve would steepen because we thought we saw short-term yields fall as the Fed gradually cut rates. I’d say that would be better steepening. How about that? What we might see going forward now is, I’d say, less good steepening if long-term yields rise relative to short-term yields. Because the outlook for short-term yields is for them to hold steady for a little bit, but we think inflationary concerns, fiscal concerns, and the rising trend in global bond yields could result in a bear steepener, where long-term yields are rising relative to short-term yields. That’s arguably not as good because if you’re an investor holding long-term bonds, it means a lower value, and higher long-term yields can make it more difficult for homeowners if you’re trying to get a mortgage, if you’re trying to borrow on the long end of the curve, if you’re a business, something like that. So I’d say that the steepening that we would expect now versus where we were just a few months ago, I would argue would be of the bad steepening kind.

MARK: All right. Thank you. Thank you, Collin.

This is for you, Ken. ‘Could you talk a little bit about floating rate bonds in the context of private credit?’ I think you’re on mute, Ken.

KEN: Am I still on mute or can you hear me now?

MARK: Okay, I can hear you.

KEN: Okay. Yeah, so this goes back to the earlier question that Collin answered about duration really. And one of the potentially favorable aspects about direct lending is the fact that the vast majority of the instruments in that space are going to be floating rate. They’re typically tied to a reference rate, such as SOFR or what is now SOFR, what used to be LIBOR. And so you don’t really have a lot of fixed rate securities, which means that when interest rates go up, the coupons for those securities are also going to go up. And of course, conversely, when interest rates come down, the coupons for those securities are going to come down. And so those types of instruments can be somewhat of a hedge if interest rates do increase because of the fact that obviously for your fixed rate bonds that do have a duration component, those prices are going to be going down, but that will be somewhat compensated for by the fact that you do have these floating rate securities where coupon payments will be going up as interest rates increase.

MARK: All right. Thank you. Thank you, Ken.

Cooper, I’m going to ask this one of you. Let me pull up the question here. ‘What should we be thinking about in this environment for sustainable bond funds?’

COOPER: I think if you look in this environment for sustainable bond funds, it’s something that when we look at kind of the outlook there, we’re really just on a neutral basis on it. I think if we look at kind of how sustainability impacts different things, looking at kind of natural disasters and things of that nature, it’s something that we don’t have too many major concerns about it. We think it’s more of a behavioral bias to where if investors do want to continue to put their investments into things of that nature, we think that if they have a strong bias towards it, that can be very much appropriate.

Really, what I’d be looking for in terms of overall concerns is just what we usually watch with other fixed income investments. So if things are a little bit longer duration, that’s something that I’d be a little bit more concerned about because if you look at just kind of in the muni market, it tends to be that products that are designated for more sustainable issuers, they tend to be a little bit longer duration. So if we do see higher longer-term rates, that could be an impact on those overall. So I do think that that’s one area of concern.

Also, obviously be aware of the credit quality of them. That can be something that if they are in the muni market, sometimes they tend to be what is called greenwashing, and it’s where they would tag something that is maybe going towards a sustainable project that may not actually be a sustainable project. So I do think that looking at ultimately what the project is behind it is, again, something to be aware of.

Mark, I think you’re on mute.

MARK: Yes. Okay, can you hear me now?

COOPER: Yes.

MARK: Yeah. Okay. Sorry about that. Minimized the screen by mistake.

We are at the end here. So one last question for each of you. What is the one thing you want viewers to take away as we wrap things up? So why don’t we start with you, Collin, then we’ll go to Cooper, then we’ll go to Ken.

COLLIN: Sure. I’d say the one thing is that there’s a lot of uncertainty out there, and we often talk a little bit more cautiously about taking risk, but that doesn’t mean you can’t take risk today. So one area that we’ve identified for investors is preferred securities. I mean, yes, it has a little bit elevated interest rate and credit risk, but we think the balance of risk and the higher yields is more attractive today. So even though we’re cautious, we think that’s a potential area, not to go… you know, don’t go crazy, but a potential to favor that over some other fixed income investments. And even with high-yield, spreads are low, but we’re still neutral there. So you can still hold high-yield bonds. We just don’t think the opportunity is there to be adding to the lower-rated segments of the market today.

MARK: Cooper, take it away.

COOPER: The thing that I would highlight is that if you look at all the volatility that’s happened in the fixed income market, bonds largely did their job. So if you look at total returns for the year, they are positive for most major fixed income asset classes. That was a big concern when you saw a significant selloff in the equity market due to everything that’s happening in Iran. So I do think that that’s an area that at the most basic level and at its core, yes, diversification matters, and we saw that diversification really worked. So for some more retail investors who might be looking at things in a shorter-term bias, I do think that that’s an area to highlight for them is that that is a potential reason why we do hold fixed income investments.

MARK: Thanks, Cooper. Ken, you get the final word here. Ken, I think you’re on mute.

KEN: Am I on mute again? Okay, how about now?

MARK: We can hear you.

KEN: Better? Better?

COLLIN: Yeah, we can hear you, Ken.

KEN: All right. Awesome. So when it comes to private credit, I would watch the economy. I would watch what is going on in the software space. But I think a third thing I would watch is I would encourage people to go down below the headline, and actually try and understand what the headline is referring to. I think I use an example with the reported default rates in private credit, or at least a specific reported default rate in private credit. There are certainly a number of things to be concerned about, but I would encourage people to not always just read the headline and assume that the headline tells the entire story.

MARK: All right. We are going to stop there. Collin, Cooper, and Ken, thanks for your time today. If you would like to revisit this webcast, we’ll be sending an email with a replay link. To get CE credit, you need to watch for a minimum of 50 minutes, and you need to have watched it live. Watching the replay doesn’t count. To get CFP credit, please make sure you enter your CFP ID Number in the window that should be on your screen right now. Schwab will then submit that credit request on your behalf to the CFP Board. For the CIMA credit, you will have to submit that on your own. Directions for submitting it can be found in the CIMA widget that’s at the bottom of your screen. And then one more option for proof of attendance that’s called… a widget called, conveniently enough, the Certificate of Attendance, and that’s found at the bottom of your screen in the Widget dock.

Our next webcast will be on May 5^th. Collin will be back on that one, along with Liz Ann Sonders, Michelle Gibley, and Jim Ferraioli. Until then, if you would like to learn more about Schwab’s insights or other information, please reach out to your Schwab representative. And thanks for your time today and have a nice day.

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