You're watching...
Gluskin Sheff & Associates Chief Economist David Rosenberg and Tuttle Wealth Management CEO Matthew Tuttle on whether investors should buy bonds.
Also in this playlist...
Auto-advance: ON
Auto-advance
This transcript is automatically generated
Take away their rally today investors are seeking safety in US debt as the outlook for Europe remains uncertain.
This is a ten year yield hit a record low last week so is it time to buy -- or is a bond bubble forming.
Private first street fight our -- today.
David Rosenberg chief economist and strategist at what's good -- are bear Matthew topple.
CEO of Tuttle wealth management all right let's get to it and and it does start with David Rosenberg you were -- -- here with treasuries.
But to meet these yields are are not so attractive at the -- why do you feel that there's still opportunity in an area that people have piled -- -- and if so at what part of the yield curve.
Well look it in a deflationary environment where policy rates or zero.
Global growth is slowing I think that safety and income at a reasonable price where you can get in the market -- -- appropriate.
-- you showed the yield on the ten year note that I actually think that the potential returns -- -- to be much better.
In the thirty year.
You take a look at the thirty year bond yields for example in places like Sweden and Switzerland.
Back in Germany in the Netherlands -- already down towards 2% we're still close to 3%.
And the most important determinant the most important determinant of yields out the treasury -- is the overnight rate.
And the Fed -- not gonna be raising rates.
In my opinion for many years and never talking -- normalizing the yield curve we're talking about the concept of mean reversion.
And this curve is still close to call -- two -- eighty basis points of spread over night.
To the long bond historically that spread is much closer to 175.
Basis points.
If we're gonna ultimately mean revert the yield curve -- bush I think it's gonna happen by the time.
This cycle is over for bonds if it's not gonna flatten from the front end of the curve by the Fed it'll flatten actually buy long term rates continuing to grind lower let me give -- a chance to weigh in -- -- it does come down to the issue of rates where they think they're going up why do you think that rates are going up.
And that -- wrong.
Yes well where we see it is this is purely a fear based trade at this point so short term -- Europe falls into the ocean.
You may get rates go down a little bit more.
But the risk of you have for the individual investor being -- at these low interest rates in the back before we had all of this Europe news earlier in the year.
With the ten year up near two and a half in the thirty year -- three and a half.
And yet we could just as easily get back there as quickly as we've gone down here so the risk right now with -- yields going up is is just -- -- But David what do you consider that he says is purely a fear based trade.
It's not purely if your -- -- -- bond yields have been grinding lower.
For many years and I would only agree -- a sense that it's never gonna be a straight line.
But.
What's going to happen.
Is that if we get the Bernanke fiscal cliff under status quo.
Unless congress miraculously finds a way to kick everything.
Be on the end of this year we're gonna have fiscal restraint in the United States next year of historical proportions do the -- Four percentage points -- withdrawal from GDP from spending cuts and tax increases at a time.
When the baseline growth rate in the US is nearly 2% the CBO came over the zone numbers early this week and said that understand fiscal fiscal policy.
We're gonna have a recession in the first half of next year TD -- -- -- one point 3%.
At a time when we have the biggest Opel capitalist country the most intense and out of economic slack for this part of the -- cycle ever.
So I could see the situation would bond yields -- what will be -- inflation absolutely.
Would bond yields go up if we got the Fed tightening policy.
Absolutely.
What bond yields go up if we had a sudden acceleration of economic growth absolutely but the problem is that none of these comparisons are gonna have I think we get -- -- That the fact is however that -- despite the stupidity inside the beltway.
There is a chance that they'll get their act together in terms of not raising taxes it is it is economic suicide if they do that if in fact taxes don't go -- If we have a congress that is much more friendly towards business have -- seen at the lions share of the new regulations so far we don't see much more.
Going in future is a possible that we may have growth and perhaps an uptick in inflation embrace.
Well definitely I mean there's a lot of factors out there at that point to an uptick in rates and we know eventually we're gonna see that.
The way we look at this is at some point it wouldn't be necessarily to day.
But going short bonds is gonna end up being the trade of the decade.
If there's no way in -- this decade of course timing is everything that when -- when -- short the bots you short the bonds when the trend starts going back the other way.
Let's bring you both back because I know David -- you're saying absolutely not so it's a great time of war here thanks guys we appreciate you being here.
Appreciate -- David you have heard and -- title thanks both for your.
