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Chris Ahrens, former UBS head of interest rate strategy, on how Treasury prices and rates will be impacted by the fiscal cliff talks.
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Guild says for more on that was bringing Chris -- these former -- -- US interest rates strategy at UBS.
Chris fiscal cliff what happens to interest rates long term we think.
Well day -- out over the short term interest rates are certainly going to respond here to the jump.
Movement in the equity markets and today we're seeing a bit of a down move in equities so I think that will.
You know influence -- -- what's funny is that since August bond yields -- traded 155.
To 185.
Right now once every five they're sitting on -- 200 day moving average.
Which for technical analysts is sort of the the trend indicator we're gonna close above that if so than the trend rates start to close below -- -- the trend rates will be lower I think for now we're waiting to see jump.
You know what happens in Washington.
But there's so much as you pointed out so much of the burden has been put on the Federal Reserve the Federal Reserve's actions by buying treasury it by buying treasuries and expanding its.
Easing program that will deep -- puts a lid on the on longer term yields doesn't.
I agree I think that it's an effect -- a cap on rates it's a defect to interest rate cap which is something the chairman spoke to us.
As one of his options back when he was not chairman back when he was a member of the board.
In 2002 we talked about deflation risks of deflation US economy -- -- things they could do was implement a cap on rates.
But I haven't done an explicit cap but instead -- act implicitly capping rates is this purchase operation and you don't.
Think that it -- unemployment will get as low as to force the Federal Reserve to move.
Sometime in the next twelve months and talk about -- six and a half percent unemployment rate is seems to be the magic number of the Fed threw out.
It doesn't seem like -- fed doesn't expect that the central tendency for for the unemployment rate for next year's is seven point 7% to seven point 4%.
So let's move down -- last twelve months from eight point seven to seven point seven.
They're looking for much less of a gain in the coming twelve months and actually if you look at their central tendency forecasts -- until 2016.
That they expect.
I'm -- unemployment rate get down to levels that are appropriate.
Even as with the Federal Reserve being -- eager buyer of treasuries at this point would you be a buyer if it with the possibility that -- a longer term rates could.
And -- of one point 75% doubt somewhat lower from here.
It's very hard to advocated having a core long position in treasury yields at these as these rates the reason YouTube by.
Treasuries at these yield levels is to conserve capital to preserve capital.
Not to get a return on capital because your risk is so -- symmetric at this point if you buy yields at this.
Level sure you might get twenty basis points some of downside in terms -- -- rally.
But your upside is pretty significant even with the Fed in there but moved to 2% -- -- -- wipes out your twelve month for return does the average investor understand that risk.
I think not I think the average investor looks -- treasuries is the risk free asset so.
When he got no inflation at one point 75% as of -- as -- -- No inflation but -- measure would have been better question it's I do think you know you are also losing a real return basis because inflation's running.
One and a half one and three quarter percent.
And we can debate whether there's upside or downside risks that certainly Chris great theme park thank you for having.
If she if he has a demon deacon in the house so I like them Gutierrez thank you some might be well happy new year I don't that they.
It is beginning to look a lot like recession.
Christmas sales struggling this notion -- -- are up next on what retailers are doing right now trying to generate at least some sales before.
