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Is the Treasury Market Pricing in QE3?

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  • Description

    Vanguard head of fixed income Bob Auwaerter weighs in on the state of the Treasury market.

  • Duration 4:24
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You actually good to see if the Federal Reserve of course pouring even more friction of that punch small but.

-- the hangover my next -- already sees the beginning of that very thing.

We're talking about inflation.

While while -- is ahead of the fixed income group at vanguard -- he oversees.

About 700 billion dollars in assets girl -- -- today Bob good to see you.

The beer and do because people talk about -- Eventual effects of all of this -- money that's -- pouring out from our central bank and around the globe what do you are you starting to -- Eventual impact of that.

Markets seem to be starting the price that and if you look at inflation breakevens -- Do you live -- nominal treasuries vs tips they briefly got up almost 3%.

And now lately in the last hour so when I checked back who work they were running about two and a half two point.

6% so mortgage start to price that in that said you're not releasing -- in the economy at the moment.

How bad -- inflation get do we have any idea.

In how well how awful it could get down the road based on the amass amount of -- money that you've been saying I -- last week given what the Federal Reserve did just the latest time.

While I think ultimately there's going to be a cap -- because there's a lot of slack in the economy and I don't see that going away anytime soon.

To tricky thing really is going to be with the Federal Reserve.

How they start to pull this money.

How the economy.

When they begin to see some progress on the labor market and that's going to be tricky thing mothers Bernanke or his success.

Do you think it did their recent actions we'll have an impact on the labor market -- today why did -- is the economy is bad enough.

Within the warrant doing what they did lastly the timing of forty million additional mortgage security buying every month 2015.

Is -- that -- interest rates might go out.

I really think it's an act of desperation part of the Federal Reserve their -- chairman Bernanke's clearly concerned about the labor market just not getting.

Any traction and is fuel and I've talked about before.

The real unemployment rate is a lot higher and 8% -- look -- number of people who dropped out of labor force and they're clearly looking at that.

But that said the whole idea behind this is almost sort of version non monetary version of trickle down economics you -- -- the wealth -- -- You know wealthier people have a higher.

Value to their portfolios that mix -- -- spend money eventually gets economy started and I think with all things going on as we approach to election uncertainty that that impact is not going.

You still see people would you are seeing two things that you are seeing people take a great deal more risk.

In a whole host of assets but you also still see people in similar way.

Looking for year olds do you find it which is more dangerous like putting your money into something that's extremely riskier putting your money into treasuries even -- maybe you're not getting well.

Church treasuries don't have enough deals part of their problems so you're right we're seeing a lot of money money being.

Put in riskier assets for example.

High yield bonds if you look at the returns that they have gotten so far this year -- treasuries are up 11%.

In investment -- could credit is up over 5% that is just not you see in quote a normal market it's.

-- I think -- -- -- -- one other times that's old country song looking -- and all wrong places that may turn out to be the case.

Near high you'll find is still close as a -- to -- serves guests.

What would you sell here and -- what are you selling hair or what you reducing your waiting and what -- you buying like what looks good on a relative I.

-- were more mortgages have really run their course and with the Federal Reserve.

-- -- a lot more mortgages we think we're gonna probably get down to a neutral position there.

Investment grade corporates we still like that that say we're not getting all sides won't Wear the other.

Very much -- were firmer benchmarks because you do have the election coming up.

And all the uncertain there and certainly Europe is not done by any stretch of the imagination ECB.

Has made some positive steps but I'm very worried about -- Any conspiracy behind this and always and actually in person and thank you so much for taken the time Bob -- -- have vanguard.

It's 700 billion dollars I can't imagine get have to deal with you and -- us but I can't imagine having to do it somehow.

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