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Janney Chief Fixed Income Strategist Guy LeBas on the fixed-income ideas investors should consider for their portfolios.
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You Gerri good to see a -- treasury prices rising today pushing yields down from their highest level in about two months so where are prices headed from here -- -- fixed income strategist -- Lovato has to weigh in on what is moving the fixed income market and again when we say fixed income.
Let's -- treasuries first.
Especially superimposed.
Over word that Fitch is looking to possibly downgrade US credit and of course.
We know what that looks like it wasn't the worst thing in the world for treasuries -- last time it happened a year ago August because of some painted it so what do you expect.
Let's tackle treasuries first.
Well let me say first of all -- I think regardless of how the fiscal -- negotiations are ultimately resolved.
There's a pretty good probability over the course of the next year that we see your ratings downgrade either from Fitch Moody's or again from -- -- The good news at least for the market's perspective is that we've been through this process before and member in summer 2011.
It was a little bit more of a surprise and what we saw as we described as a traditional sort a risk off trading.
Which is to say spreads and corporate bonds widened.
And treasury yields continue to fall despite the fact of course it was a -- is being down.
Is any of course we know the Federal Reserve is buying I guess up to 70%.
Of of the treasury bonds right now but who else is buying.
While there are a lot of investors out there you know -- an individual investor however I have described the treasury markets right now is return free risk.
Isn't he did and -- takes about a point 2% increase in.
Ten year treasury yields over the next twelve months which could very legitimately happened to wipe out entire year's worth of income as -- value of the bond with the clock right.
Tickets so -- that that level of risk doesn't lend itself well -- so it's it's return free risk.
Nobody wants that we need return for the that we want risk -- that we want some real return where is a better opportunity in fixed income land.
So we continue to be very big proponents of the corporate debt market a couple areas both investment grade and the high yield markets.
-- take a look at -- of the risk return trade off right now the triple B and double B sectors look most attractive to us.
Other areas that we also like -- some of the higher quality municipal bonds and over the course the last week alone.
Spreads on municipal bonds relative to treasuries have widened out helpfully so I think there's actually good opportunity.
Even the last few days a year to get in some of the Munis -- -- things but getting back to what the Fed is doing they they seem to be rigging the game against -- here has there ever been a tougher time for fixed income.
I don't think there has certainly not an -- our recent memory but what I will say is this.
Part of the reason the Fed is as you reference rigging the game against -- is in order to encourage -- savers to spend and -- as support for economic activity in the short term.
Well as we've seen that call has only gone so far currency is sort of a law -- diminishing returns for further -- action that is just punishing those savers and not so much helping the spenders.
-- -- -- -- a general question to you what do you think is the biggest risk in 2013 for all investors.
Well I think the biggest risk for all investors really is the level of interest rates and and we have a lot of factors.
Which potentially stand to affect the level of interest rates at an increase -- interest rates historically that also has some.
Negative impacts in the stock market because as discount rates go up on stocks stocks tend to come down a little bit.
View about always a pleasure to see you thank you so much for coming in appreciate that -- -- income strategist.
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