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BlackRock Managing Director Peter Hayes discusses how the government’s actions on the debt ceiling could impact interest rates.
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-- -- So if lawmakers -- screw up.
Our interest rates going up Peter Hayes is the managing director of BlackRock head of the BlackRock national municipal bond fund of -- more than a hundred.
Billion dollars in assets.
Peter -- you to be here -- the so if we mess up if they mess up.
On raise in the debt ceiling do you think interest rates a -- -- Or who -- -- what can we expect in terms the bond market.
That I think you expect volatility -- a couple different ways to answer that but the bottom line is you see volatility.
The longer we go.
And cult talked about some of the issues and in Washington and how you get there and -- government missing payments and so forth.
It's gonna get messy at the end of the day they probably get something done they seem to react only when their backs -- against the wall.
But the longer they go the higher probability US loses its triple -- rating by the other two agencies members and 2011.
-- enough.
Prices rose rates fell don't know if we get the same reaction -- Simon that's going to be the real.
The real I mean that's the upside down crazy world that we live -- is that you buy one rating agency lose your triple A credit rating.
You misbehave.
And we have our longer term interest rates fall how long I mean how long can that really continue again on the yield on the ten -- is slightly lower today.
Right slightly lower down of 180 I think part of that is that people think.
It'll be bad for the economy so risk assets things like equities -- -- -- sold you have this flight equality -- and equality still is the US treasury US government.
Rates fall that's that's one side of the equation the other is.
The markets won't be so accepting investors won't be so accepting it may take their money elsewhere the big question is where it's elsewhere it's a German -- is perhaps.
That'll be recorded big question -- rates go go up.
I think it's just a matter of time if we do get to this.
Point deficits are so large at some point you have to pay the price in terms of higher borrowing costs this -- this year -- next year at some point that'll be the ultimate outcome.
What does that mean -- -- again you managed municipal on municipal fines and -- -- focuses municipal bonds.
But I'll flip side of that is if the -- Democrats have their way and raise taxes raise taxes even more that is good for Muni bonds.
And -- to have you continued to see money flowing in any bonds at the beginning of this year.
Tremendous flow of fact the day after the election we had a tremendous rally because the perception was taxes might go up well we got the deal right New Year's Eve.
And taxes actually have gone up but thought the more -- -- few days of actually opened their first paycheck and the reaction has been foiled attacks by it was pretty big.
And because of the taxes in nature of the income -- -- class benefit so that's the fact in front of us.
You -- I think to the tax exemption a little bit what will happen there I think it's likely that President Obama will.
As he has in the past -- perhaps capping the value of deductions so you have to cap that 20% so number it's been used.
I think it's going to be difficult to ultimately get to tax reform in the US to look at the -- was to get to just a partial deal the end of the year.
But the market's paying attention to that -- that does impact the value.
Bonds amid Muni bonds incredible run last year as well high yield Munis where an average fund was up almost 12% and I think something -- about.
How overvalued.
Though are these these bonds at this point and are there any areas of that market that still look reasonably priced.
I think it's about not so much because it's not dangerous I think you you often quality that's been a theme of -- there.
Around our claim few years for a few years that's right -- yield has that I certainly had a very very good run here was some returns but.
You have to think about not so much over value but -- setting your expectations why do you wanna invest in the Muni bonds and it's because you wanna keep more of what you learn another.
Outcome of the end of the year was -- limiting the value deductions so that's another way and that's not -- impact municipal bonds.
But that's another positive feature attracting demands and yes -- -- forget about -- total returns we saw last couple years.
You'll see that also get a dramatic fall -- rates that's not likely to be.
The scenario in 2013.
So it's really about how do you maximize -- -- we're do you find value I think a little bit shorter duration probably is warranted given.
Where we are and interest rates credit spectrum the middle credit spectrum they rated type revenues -- you still.
Find some nice income opportunities there.
And -- and take advantage of the opportunity to invest some of that cash potentially higher yields and lock in for a longer period of time.
Did you -- Pena -- that always the covered a lot of ground and thank you so much Peter Pace of BlackRock.
Artist.
