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Haverford Trust V.P. John Donaldson on the impact of Federal Reserve policy on the bond market.
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The Bank of Japan following the Federal Reserve any European central banks -- today pledging to buy an unlimited amount of government bonds to fight off deflation.
But the question that we want to know is will Japan's central bank's move helped spur global economic growth joining us now John Donaldson.
Ever heard vice president and director of fixed income.
John.
To first on this move by by what Japan did essentially.
The market was not to please they didn't take Japan went far enough in terms of its easing in terms of of what the Fed is doing in and what Europe is doing what you think of the move in general.
Why don't know about far enough first -- -- thank you very mature having -- I don't know far enough is the primary concern as opposed to fast enough.
There -- talking about doing something you know out later this year even in early next years in pretty sharp contrast.
Two are fed where if they're buying securities it's starting tomorrow.
And when they talk about two years from now they're -- now when they're easing might possibly answer I think it's that not fast enough that's the market's concerned -- -- Right -- a little bit closer to home and John.
When -- said.
Perhaps maybe this year and our bond buying our -- what happens then to the bond market.
It may be not as much of a shock but clearly -- -- bond's price for the -- in treasuries and agencies in particular these low yields.
It's still hard to justify their return levels on bonds.
Yeah when the intermediate index -- yields all of slightly above 1%.
That's in pretty sharp contrast all those positive earnings.
That you've dealt with in the last forty minutes on the shelf.
Where you've talked about stock pops of 34%.
You know again -- bond market yields one to barely 2% for broad index yeah that's pretty big difference -- -- -- valuation of the asset classes.
But at the Fed must be squeezing out other bond buyers right and they're going and so so big -- such a big way aren't they aren't they do and that's squeezing out the other buyers in the market.
They're not as much as you'd think -- yet as much sales -- is they're just soaking up some of the already large government also -- so that is squeezing anybody out of any other markets -- other artist -- -- as long as politicians are are willing yeah.
To into endured incurred war debts then there's going to be plenty of months to sell.
Yeah I -- what they're doing is key being there from being a market penalty.
For bad decisions.
You know -- be if -- interest costs go up.
Yeah -- that could be pretty good shot to the budget.
-- getting your head a little bit now you do see opportunity in fixed income so -- exactly how reign playing this this field.
A couple of things we'd look at one.
We would look act.
Owning financial bonds in shorter maturities -- a little bit longer we want non financial bonds.
And that's.
Reflection of how far financial bond spreads have -- and in how much they've contracted other bonds.
Well -- you look at what any.
-- -- look at corporate bonds and immunities among those I mean I I imagine you have a mixed but which one do you prefer.
We like communities and taxable Munis based upon pricing and valuation.
We also like the fact -- are gonna be less correlated to our equity portfolios.
While corporate bonds are better valued than governments they're gonna have a higher correlation.
To the equity markets and if you're gonna tell people are underweight.
Bonds as an asset class and perhaps overweight stocks you don't just -- -- and then double up the overweight in bond.
Sectors that are highly correlated to the equity market -- -- we're looking at Delaware high yield Muni bond that's one that you particularly like right.
They did say in that sector it's OK yes.
-- people like Munis -- still looking for tax free income right it's not.
John Donaldson -- vice president and director of fixed income thank you so much appreciate your perspective tonight thanks John thanks a lot while.
