Why Kapstream’s Dan Siluk says the “old normal” is back

Please note this interview was filmed on 31 August 2026.

"I would characterise today as being the old normal. And the old normal is one where you have structurally higher interest rates, structurally higher inflation, structurally higher volatility, and central banks have returned to really focusing on inflation."

The so-called "new normal" of near-zero rates, quantitative easing and a central bank put that stepped in every time risk assets wobbled conditioned investors to expect that bonds would always rally when equities fell. That expectation is now being tested.

With governments running deficits at levels ordinarily associated with wartime and the AI buildout driving a wave of new corporate issuance further out the yield curve, the back end of the bond market is under pressure in a way that breaks the traditional 60/40 relationship.

"If an investor is using traditional fixed income for its diversification benefit, well, I don't think you're going to see it unless we get a recessionary type environment or a left tail event," Siluk says.

“There's some great income to be had in the front end of yield curves and that's true globally today.”

In the interview above, I spoke with Siluk about why short duration bonds are the place to be right now, the dilemma facing central banks as AI capex continues to ramp up, and whether income really is the winner from the changes to CGT.

Why short duration wins

The breakdown of the bond-equity diversification relationship is not the end of the fixed income story. It is, Siluk argues, a reason to be more selective about where on the curve you sit.

“The important thing about a short duration manager is that we are not chasing yield by going further out the curve,” he says.

With deficits increasing, massive amounts of investment grade debt issuance and geopolitical uncertainty sending energy prices higher, Siluk adds that investors are simply not getting paid to take on that additional duration risk.

On top of this, when the RBA restarted its hiking cycle earlier this year, managers locked into Australian duration faced capital losses. Kapstream was not among them.

"Our absolute return mindset and philosophy allowed us to own duration in other countries where they hadn't yet needed to pivot. The absolute return focus, benchmark agnostic focus allows us to seek the best risk adjusted returns globally."

AI spending, inflation and the central bank dilemma

AI investment spending accounted for more than half of US economic growth over the past six months. While the thesis that AI will create a productivity boom that is deflationary in the long term, over the short term it has helped power inflation.

“The problem is the amount of resources that are required for this build out, and it's true in the US, it's true here in Australia. There's been obviously a huge amount of investment that continues to go into data centres,” Siluk says.

“What does that require? Well, it requires resources. It requires labour as a resource, it requires energy … and then it also requires construction materials, commodities, etc.”

Central banks, having learned the lesson of calling inflation "transitory" in 2021, are not going to wave the victory flag prematurely.

"We're in a structurally higher rate, structurally higher inflation and structurally high volatility world. While it may not result in another aggressive hiking cycle, central banks will have to maintain their tough stance on inflation."

On the wave of long-dated corporate issuance from hyperscalers like Microsoft, Alphabet and Amazon, Kapstream has been cautious. Credit spreads are at the tight end of multi-year ranges, and the new issue concessions being offered are not yet sufficient.

“We’ve been very cautious and careful on tech, not to say that there's any issues with the sector, but just that they're probably not paying enough.”

Inflation dragon not slain yet

Domestically, Siluk is watching the RBA carefully but is not convinced a September hike is imminent. The inflation profile has improved, but not as quickly as the central bank expected, and unemployment has risen only gradually.

The May budget's changes to CGT and negative gearing have already begun to soften house prices, which he notes is a complicating factor for a central bank trying to engineer a controlled slowdown.

"The inflation dragon hasn't necessarily been slain just yet," Siluk says.

“The important question will be, is this the start of another two or three consecutive rate hikes or is it a case of one and done?”

On the CGT changes specifically, he is clear that the shift toward income investing is not a knee-jerk reaction. Fixed income yields are now above the ASX dividend yield and above rental yields on property, a reversal that is driving genuine capital reallocation.

“Any yield seeking investors who are going to be comparing rental yield that they can get on property, S&P ASX dividend yield versus the yield of a risk-free or take some credit risk and get a little bit of additional yield, well, at the moment, fixed income is actually winning that battle.”

Why dispersion is the dominant theme

Looking out 12 to 24 months, Siluk's central theme is dispersion. The end of free money has forced companies, CFOs and central banks to make genuinely different decisions, creating winners and losers in a way that the zero-rate era papered over.

"This is where fundamental bottom up analysis on behalf of your equity managers and your fixed income managers, their role will be to separate the wheat from the chaff," Siluk says.

Dispersion also has a role to play with central banks, which have needed to transition from just managing volatility and “promising to keep the gravy train going on the rise in risk assets”.

“They're managing their own domestic inflationary environment and because they have different social and fiscal policies post-pandemic, it's resulted in some dispersion amongst central banks and their reaction functions,” Siluk says.

“Across the board, we feel that maybe it's a stretch to call it a renaissance, but active management is really coming back pretty strong across asset classes, so that's an interesting theme for us as well.”

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