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Kevin Giddis from Raymond James on how bond investors will react to the end of the central banks quantitative easing.
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By the end of 2013.
Is the end of quantitative easing the infinity.
Reason enough for bond investors to throw in the towel maybe not joining us now on a Fox Business experts from Memphis is Kevin get a so he knows he's out of fixed income.
At Raymond James -- -- happy new year.
-- who is having the media -- couldn't wait to hear your opinion on bonds and treasuries and Munis because oh my goodness we have seen yields spike.
For treasuries right now -- -- a thirty look at any of them.
All in the wake of what the Fed kind of hinted at in those minutes and that is they would eventually start easing back on all of the liquidity they've been trying to prop up this market.
Does that mean treasuries are content not really could play at all lately and -- going forward.
You know it's a different -- that it has been in years past the we've been in this situation before list -- where we've seen.
The beginning of the new calendar year show a certain amount of optimism may end up.
But the economy in equities and then in the bond market that has tended over the last three years.
To go up in yield for a period -- ticket February march depend on what year and then win the reality sets in that tends to peak -- -- -- back down it went by the way we cannot.
-- -- let's -- that we we have a chart showing.
That peak to trough peeked trough but its always lower highs and lower lows and and I'm just wondering when will we see -- -- piece of that trend this year so that.
People can know in advance whether they should -- tradeoff that momentum.
Guess again that the conditions are different -- when we went into little little bit different this year there was in previous years -- -- -- deal with the fiscal cliff so there was some.
Assuming that that do you have a budget package assuming you have significant spending cuts and deal with the debt ceiling which is another month month and a half away.
Then there's a chance they yields are gonna go higher throughout the course of the year but I wouldn't throw in the towel national and that all my eggs in the congress basket so.
You know I still think that there's a chance that as long as inflation remains low in the economy remains.
Steady but not in us not run away from us that is chance of bond yields -- -- -- in the in the same broad range of where they are now.
While we -- -- Smart guys like you want because you can tell us.
What to anticipate half of the battle is always anticipating and -- ready.
Do you have let's say for example two major concerns two things that could possibly happen that could derail the picture entirely for treasuries.
Well again treasuries are going to be -- function of inflation and economic growth there's a lot of noise around what's going on in congress and certainly at what the Fed's gonna do if the Fed pulls completely outlets between now and the end of of the year then that would be a major factor.
At least -- but they also said that in less unemployment gets below six and a half percent the pledged to be had so let's say we haven't sent in fed that's one thing.
Economic growth as long as we're in this pattern between.
-- two in two and a half percent growth rate without much inflation or the ability to put a lot of slack in the economy.
Then now than treasury yields are gonna are going to be fairly steady now in this falls below that you gonna see treasury yields fall again but right now it's it's kind of on the highway.
-- on the highway of let's get to real opportunities -- -- in fixed income no matter what.
You've been immune people municipal bond -- now that we have some clarity on.
Whether the tax situation stays cope -- setback when it comes to the municipal bond market do you continue to like them.
You know at it again in you know that's -- I I like them in 2012 for eleven months in two weeks in the last two weeks the legislative process.
-- some kind of threw a monkey wrench into this -- so.
So between now let's say march 1 they're gonna they're gonna probably bring up the the tax exemption or the cap on on tax exempt interest.
Which would would maybe take a little bit differently about the -- market because you're immediately gonna have to make an adjustment in price but right now I like I still like the market from a credit standpoint.
And we'll continue to and lesser just a catastrophic change -- It again that those charts to show on the far right exactly what you're talking about what -- you didn't talk about as far as a concern.
Which surprised me a little bit just what if we get downgraded what -- US credit gets downgraded by one of the two ratings agencies it still has its AAA.
Do you worry about that -- or is -- sort of a non issue.
Well and if it's always an issue you don't want to it to see you know that here.
This country's credit downgraded but the last some -- what we know we had downgraded the treasuries actually rallied and yields fell so wasn't like the put a whole lot of weight into the downgrade.
-- so they -- the rating agencies are gonna do -- they're gonna do the market's gonna react.
Two things that are probably external to that the problem is that it in this and we have a -- issue as long as we don't face that debt issue down.
Then we got the the risk of further downgrades and actually you know more concern about.
We're treasury yields need to be when that happened so but overall the markets not -- terribly concerned about any potential downgrade.
Aren't you know market doesn't show terrible concern right now certainly right now -- up about 36 points tacking onto a piece of tape yesterday -- -- Kevin thank you very much.
You to us thank you Kevin give us -- head of fixed income at Raymond James is.
