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Outlook for Interest Rates, Fixed Income

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  • Description

    RBS head Treasury strategist William O'Donnell weighs in on the state of fixed income.

  • Duration 4:18
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Fixed -- the Wall Street Journal this morning reporting Pimco founder Bill Gross the manager of the world's biggest bond fund.

Is now pulling back from investments in government debt doesn't talk about that the Fed decision coming up this afternoon and all things related fixed in -- the head of treasury strategy at RBS.

Just this morning bill wrote that the rally.

Hopefully we can get that for you guys the rally of the past year is running on tired and faded lakes bill it's great to see -- what's your take.

-- you know I have great empathy for what Bill Gross mention this morning at the same time.

It I've been all around this country talking to major fixed income investors and I hear the same refrain.

As we get closer to the election on November 6 -- with tightening national polls.

-- fixed income investors are just becoming increasingly concerned.

About the potential for -- digital -- -- November 6.

Adjusted yeah with the with the respect to conduct a tax policy.

Government spending.

All of that -- results.

We just see a lot of fixed income investors pulling back and what I would -- And I'm just.

Watching the results of the five year auction.

Put out -- few minutes ago and it was pretty pretty weak actually compared to some of the earlier rounds.

But my question is this -- are we facing a situation policy interest rates rise sharply once we get past the election date.

Come to some kind of agreement to avoid a fiscal cliff what's your what's your outlook for interest rate.

Well I -- it at almost everything is predicated on what transpires on November 6 super lucky enough to get.

It out to avoid the recount.

-- debacle that we had back in 2000.

In our view in the view of the markets generally is that -- -- Romney victory.

Would be a great event at least in the near term for risk assets which of course would be to the detriment of fixed income in treasuries generally.

Because the money would flow out of safe haven.

Six -- come in into risk assets like stocks.

So would you recommend investors -- similar to Bill Gross perhaps similar to you in your advice then pare back on government debt right now in apocalyptic.

And physical that's exactly what's happening in you know you see you such huge investor demand for two year notes yesterday.

-- -- at basically thirty cents and yield.

We saw a decent auction -- a near record amount of direct bidders for today's five year auction.

And this two to five year sector of the treasury curve or fixed income markets generally.

It's a place where people like to hang out because it sort of locked and or tied to the defense policy guidance out to the middle of 2015.

The -- are confident about the long -- right now especially with our fiscal situation.

People say you know I didn't -- -- thought that it don't know how to price the long end they can understand with QE3 and QE infinity call what you want to.

That inflation expectations are rising so it's very difficult the price.

You know hiring in inflation expectations in long duration our long maturity treasuries.

Relative to the conduct of Operation Twist which is removing.

You know the net supply of treasuries and in the middle of the curve and and the asset out of the market it's very very difficult for investors.

And that's why we've seen.

Not a lot of attention leading up to the FOMC decision this afternoon yet there's some talk that Bernanke.

More than likely won't hang on for all that much longer for -- administration changed.

Also that we might hear some of the other fed members -- more vocal trying state their case set deep do you think that we'll get some.

If the -- -- -- just ask you for what you're expecting out of but today's medio should be listening for because we know that monetary policy is gonna hold steady or.

-- -- it out as always we wanna see what the Fed is going to say about their assessment of current conditions.

We don't really see it -- current conditions have changed that much.

Consumer sentiments up a little bit retail sales have been relatively robust home prices have continued to rebound.

But it says.

It's a relatively recent rally so I think that they're just we expect very little out of that fed especially now we're down to within two weeks of the election.

We think they'll want to try to keep the election at arm's length.

Stay the course and see what happens after the election who's in power and then -- -- conditions that result from that.

Great stuff -- -- always great talking to have a good afternoon.

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