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Janney chief fixed income strategist Guy Lebas weighs in on the state of the fixed-income market.
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Thank you so much so as the stock slide picks up steam investors are jumping into the perceived security at US government debt there's look at the ten year right now.
People are just piling in pushing that yield down to one point 62%.
And other six.
Basis point move to the downside.
There -- US treasury auctions today as well tremendous demand for that paper.
This is -- look botching fixed income strategist for Janney Montgomery Scott pleased to have you back with -- -- what do you make of this move.
Well I think we're -- a couple of things here number one is the expectation that Fed Chairman Ben Bernanke will continue to keep his -- at least this -- dovish.
Counterpart will keep his seat.
Through probably 2018 years selling that speaks toward the relatively low and about a lack of confidence and another four years with the Obama.
-- I really don't think that's what is about I think Ben -- chairmanship has a much greater effect than it's very hard to overestimate.
The power with which the Federal Reserve -- -- -- mode under Bernanke is really driven real interest rates lower.
And also driven a flood of cash and to risk assets like stock.
So let's talk about these relatively low rates because boy it just crashes people dependent upon fixed income as you I'm sure are well aware.
Retirees people facing retirement and it where should be put their money what -- the best options in fixed right now.
So I think the first thing I have to say that there's really no easy solutions fully kind of look at the -- available sort of set of options to investors are kind of -- options here.
Number one stay in cash -- walking in a negative return because of inflation.
Number to go to inflation protected assets like tips there returns -- low as well.
Number three we call it riding the Central Bank -- in other words buying the same treasuries the Fed is if that's not that productive in the long run.
And number four I think is the most intriguing option although still not as appealing as it was a year ago it was buying into risk assets just corporate bonds.
Municipal bonds and even on the margin dividend banks.
-- -- nervous of dividend paying stocks with the likely dividend tax coming up.
Right I'm right agreed and Panetta visited no easy solutions in this circumstance in particular it's very unique in that respect.
So what do you forecasting for the -- yield will use that as our benchmark I read one and a half percent somewhere this morning.
I think that's a little bit on the low side month under our our calculations via -- recent rally is a little bit overdone.
And we're expecting yields roughly twelve months from now to be in the neighborhood of one point 8% which is functionally not all that much higher -- there are things -- about Munis Sutton a task earlier actually but why they're just doing nothing right cashing -- bail.
Especially with the tax picture -- won't.
Not at all actually Munis tend to benefit a lot of times from higher tax rates particular in higher tax bracket individuals.
Because the tax exempt income -- they provide becomes more valuable as tax rates rise.
There is of course -- long term risk there's some change in the structure to tax exemption.
But I think in the short term that gets very much balanced out by the potential for higher tax rates benefiting Munis.
Over the course of the next -- and -- -- -- out here with fiscal policy so much in focus do you expect any kind of interest rates going up on the longer end.
Because of that -- -- you expect well we that we flatter yield curve -- -- hold out for the near term.
I think if you look historically at -- financial crises that have led to sovereign debt expansion and they're number of them over the course the last hundred years throughout the world.
What we tend to see is that interest rates don't generally -- rise because of credit risk within a country.
That tends to be very very far down the road so so the potential for.
Fiscal imbalance to lead to higher interest rates is really something it's going to be left 2016 at the earliest assuming congress the president are unable to -- the course of the deficit.
Actually it's one thing we don't have to -- got to have helped keep thanks so much it's certainly a positive net.
