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Treasury bonds -- tiny yields have got to fix manager who says there are other places to make money.
And fixed income.
Jim call and -- -- chief fixed income strategist for Wells Fargo advantage funds and he joins us step let's start with something that that that just sends up red flags all over the blaze jumped.
John high yield bonds actually you can you can -- audience duet a spider ET FJ and K.
Is a symbol.
It wouldn't that send up a red flag for a lot of people well it.
Junk -- a naturally a bad connotation to it we like to say the market for high yield bonds but if you look at the performance of high yield over the past two and a half years.
It's been very very strong and the reason -- -- -- by the way you can see it's come -- looks like it's in a buying range right now if if investors one income.
You can't find income in most areas of the fixed income markets.
One of the exceptions it is high yield corporate bonds where the yields are six and a half seven and a half percent range.
And a well diversified portfolio.
Of high yield corporate bonds.
Should continue to perform quite well in our view we are and what I like to call the sweet spot of the credit cycle as far as companies are concerned.
There're credit fundamentals are improving because of good cash flow.
They can refinance debt this is that in environment and typically.
In which high yield performs reasonably well it doesn't perform well on days that equities are performing poorly.
Because it's more closely correlated with equities and with treasuries.
But -- there's going to be some volatility no question about there has been volatility over the past two and a half years.
But it's still the best performing fixed income sector domestic sector over the past.
-- -- -- you mention involves only that is why we have seen so much movement in the cash I mean in the really the retail investors -- is not in the market.
Since 2008 they're afraid -- and been cash really do all the movements into treasuries is seen in the last month -- means what I think my most of the move.
-- the treasuries have been central banks in official institutions Erica treasury yields are perfectly correlated with the what's happening in Europe when Europe is having a problem.
Treasuries rally when Europe is improving the few days that that takes place treasuries sell -- and yields rise.
There's very little value in treasuries and our view -- the yields are simply too low we should be investing for income.
And and and then the spreads between.
High yield corporate bond yields and treasury yields.
Are very why they're almost as wide as they ever get taxing out 2008 let's talk about the most basic spread -- -- which is a spread between inflation.
And interest rates when are we ever gonna see interest rates.
Track higher than inflation rates well again we're we're talking about treasuries.
Treasury yields I think you one might say are below the rate of inflation are certainly there are about equal to generate inflation all your loses we're losing money when you factor inflation -- -- does that is that ever gonna change.
-- -- -- -- -- If you could tell me when Europe is gonna settle down.
That's I know that's a big if I think you would see treasury yields somewhat higher the recent treasury yields are this low well below what we would think is the trend rate of inflation.
Is this safety bid the flight to safety and that's why we've been encouraging clients eight.
Not to whole lot of cash but invest for income and yes there's a lot of volatility in these markets but over a longer period of time.
You get paid for owning the lower yeah.
Back in the day I'm talking like six years ago an immune is -- -- safe place to go all you know cities towns states and mountain you similar Muni.
And you get kind of a -- jury -- people are afraid of because I know.
They shouldn't be afraid they shouldn't be afraid of it there a lot of headlines.
About that cities and and and and counties and you know having for fiscal problems.
-- -- those those are well is that those other minorities -- still looked at very very low default rates upon in in the municipal bond market people should not be frightened by.
The news reports that that they see they should be investing in a well diversified portfolio municipals and in fact.
The best values in that market.
Are in triple B double -- triple B and single a credits not in triple -- and double -- That's where you get yield in that market fixed income used to be so simple not anymore is it that well it's -- it's.
It's still simple you you you look at spreads you look at relative values you look at fundamentals you take a longer term view.
And the longer term.
The missile market and the high yield corporate market have been your two best performing fixed income -- and I get -- can cut him off cargo managed finally at a -- -- -- it just.
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