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BlackRock fixed-income chief strategist Jeff Rosenberg on how to create safe yields in the fixed-income sector.
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Thank you -- and thank you are right Europe a big drag and our markets we've been talking about today -- worries about Greece you also have worries about Spain which is certainly hurting.
Stocks -- once again investors flocking to US debt how dangerous is that bat let's ask Jeff Rosenberg.
Black rock's chief investment strategist for fixed -- com would you make that bet now.
Would you put more money into the ten year.
Well right now what's happening -- -- having a period of risk off and -- -- flight to quality makes sense.
But over the longer period these interest rates are just too low and see you putting a lot of principal at risk.
-- a 18010.
Year interest rate that's below the level of today's inflation that guarantees that -- gonna have a negative real return.
On that investment over time people are going to bonds.
Because of the diversification they go up when stocks go down people like that that's the value of bonds and that makes sense.
But over the longer period of time these interest rates system makes sense and -- -- -- care at some point.
-- and I know we've been saying this for forever but at some point this dynamic changes I guess when the Fed changes or something's going to happen to change this dynamic at some point.
And what at what that is at what we're trying to accomplish years we're trying to create inflation.
So which are seeing today in Europe is again -- fear of deflation.
If Europe fails if banks -- in Europe that's a deflationary outcome that makes interest rates go lower policy intervention.
Massive expansion -- the -- global Central Bank balance sheets the potential shift here away from austerity towards more growth.
Means we're trying to engineer inflation.
We will be successful I think and when the markets realize that policy makers are successful than inflation overwhelms deflation is a fear and that's when the big shift occurs but it's been very difficult to.
Crucial -- we've.
We have Bob lower on a couple of days -- a few days ago from.
Vanguard and he says that where's the best value in fixed income and he said.
There's no good values have disparaging to have a diversified portfolio and fixed income is there anywhere that you could safely go and get.
A nice amount of -- -- in this environment in -- -- or -- you have to look to stocks frankly.
Will the key word is safely and this is Alison.
Yeah I had and and this is exactly what policy making has tried to do which is to take away.
Safety and preservation of principal at the same time.
If the Fed puts interest rates at zero and effectively makes.
Every yield curve you every yield on the yield curve below the level inflation the only way -- create safety is to take risk.
It's -- the -- way to protect principal is to take -- that is exactly what they mean by portfolio rebalancing -- did you like stocks over bonds at this point -- like stocks over bonds for people who need capital appreciation but what you see in the flows is the vast majority of what people want today is not capital appreciation they want capital preservation exactly how to -- preserve capital when interest rates in the safest assets are below inflation.
I have to take on a risk but you don't think we got to go here to second you don't think there's some sort of a big market event or credit advance and -- like event that's gonna happen again.
Well you're opening just good yields and Spain are way up today and I know Greece is a mess but -- -- -- worried that so people are looking at the headlines today in Greece and they're doing the knee jerk reaction here we go again for now what is fundamentally different is that.
News flash Greece already defaulted.
Second point is the ECB is run by a different head who understands that you need lots of liquidity to support the banking system -- -- two fundamental changes in Europe.
Is not the same -- that Greece -- -- the same as it's been over the last three -- -- come back canary sanskrit -- except Rosenberg thanks a lot lot.
