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Are Treasurys Too Risky?

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  • Description

    Bob Auwaerter of Vanguard gives tips for trading in the Treasury market.

  • Duration 5:46
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But right now your money our treasury -- the riskiest bonds that you can buy right now Bob our border is back with as Bob is the head of fixed income portfolio management at vanguard.

And he oversees more than 600 billion dollars in assets -- and valley forge Pennsylvania.

Bob -- to be here you pointed it the last time -- on even that.

The -- -- -- outperformance has been an riskier classes of bonds where there's on the emerging market debt high yield.

Do you think though that treasuries in -- with the backup in yields are still kind of your riskiest bet among all those classes of fixed income.

I think they have the ones that have the lowest projected -- to return just because yields are are so -- I am more concerned about the other sectors that you mentioned because they've run so far so fast since the beginning of the year and what we start to detect for example investment grade corporate debt.

Which is you have been up roughly about 4%.

Above but treasuries on year to date bases as the market feels like it's starting get a little heavy right now.

Whereas earlier on in the year we saw a lot of money coming off the sidelines and -- -- put the work.

And now we're in the situation where other corporate bonds are being -- for to new issues which are come marketplace.

And what about their outperformance -- we've seen and in high yield corporates for example or even emerging market debt because outperformance in emerging market debt.

Has been over treasuries greater than all those classes that we've mentioned.

Sure it's it's absolutely.

Been stunning and I thank.

Two.

-- and maybe it's a little bit to paraphrase.

The old country song looking for yield in all the wrong places -- -- to see if that turns out to be.

-- the case are not but.

Get anxious people searching for yield -- you've had countries -- -- Estonia.

Romania come that -- market.

Lithuania over last.

Several months these are countries which.

They never had access to the markets India and yet when new deals come there you -- walled -- there heavily oversubscribed.

So that's sort of the new -- last everybody's been chasing lately.

Bob what do you make though of the backup in yields and again -- these searching for yield in the chasing yield is what really got us into trouble.

With the -- hot housing and financial crisis because people were willing to buy like the lousy list of lousy mortgage debt.

Thinking that you know that they were getting paid if it -- getting paid to take that risk may be.

But in terms of the backup in yields in treasuries that we've seen do you think that that -- that will continue for the rest of the year.

While it's gonna take -- Fairly strong economy to -- is off substantially higher from here where we've certainly seen.

Some.

Growth pace to the economy which ruined NC in the fourth quarter of last year I guess they're gonna wanna questions my mind is.

We know where is the next crisis is gonna come from if if you look at the pattern of yields in the last two years.

You had a fair amount of optimism about the economy early on in the year and then what happened -- spring time came around is.

There you.

But then here -- -- what's going to be next prices are gonna be Israel trying to take guy out -- Iranian.

Nuclear.

Since facilities in that case -- you get up a spike in oil.

Which shall.

Depressed consumer confidence so here are some of things that I try to worry about and they're very difficult to model as you can quite a match.

And yet I mean it's a again in the great unknown and it's in the -- it's very difficult to quantify Bob of all of -- Opportunities out there and fixed and comment -- -- the right stocks and there as well look as we part.

Even from -- semi fixed income guys talking about how stocks that have worked really -- terms of attractiveness almost all of -- here fixed income classes.

Would you like right now what do you think you get the did biggest bang for your money potentially.

Well.

I think stocks looking at the longer term are probably positioned better just because yields are so low.

And most fixed income markets there's very little margin for.

Are -- over a longer period of time some point the Fed's gonna start to raise rates maybe -- even be in my lifetime walk away and say.

-- -- but one that does occur.

A you're gonna start to get negative rates have return.

Pretty quickly on fixed income securities because the coupon.

Income cushion is so low right now.

And Bob one last thing where people doing with their money have you seen -- pullback in the demand for the super safe.

-- treasuries.

We we we haven't seen much Monday have been coming in of those funds for some time but we are continuing to see fairly strong flows into our bond.

Mutual fund since the beginning year data really have not abated at all.

And I think a lot of that is -- The growing realization of the Federal Reserve is they've told us is gonna be on hold.

And so -- 2014.

And it's pretty tough to deal with money market our rates at 25 basis points right now.

Right Ben Bernanke try to justify Begin this has awakened -- great to talk to as always thank you so much for take in the town Bob all -- -- -- fixed income.

And vanguard -- season.

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