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Strategies for Trading the Bond Market

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    Nomura Securities Managing Director George Goncalves on investing in bonds.

  • Duration 5:18
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OK so with the market at its best loved one more than five years and -- suddenly people are starting supposedly to feel comfortable.

The number of new highs growing by date does it make sense.

To keep your -- -- parked in treasuries.

Especially when yields are just around 2% just for that ten year let's bring in George -- all of -- Nomura securities managing director.

And here's this title head of US rates strategy.

Which fascinates me because I that a rate strategy head who knew but when you wake up in the morning.

What's the first thing is you fire up your laptop your computer your your PDA whatever it is what is the first thing you check what.

Is the first thing you look at what -- first off we don't sleep in the bond markets it's point four how to spot market exactly the word we're on all all time we're looking at.

What's going on the overnight such as what's -- on the currency markets.

We're getting information from all all angles and we're trying to decipher.

You know is there isn't it similar type trading environment we have before -- -- prior.

And you we look at the currencies the Euro the yen we look at.

What's going on futures and even on both the bond market and -- stock market when you see the Europe today at 137.

May be 138 of what what is set immediately tell you was there -- some type of whiplash domino effect -- to some other level -- some other rate.

Also again not everything is one for one he -- happening to your head.

What you think that would translate into your respective markets -- -- behavior yes and took another look in the bond market knew we can talk about valuations.

Because talk about -- different things it is being supported by -- -- both from keeping rates low and by doing QE so it's hard to really.

Read the tea leaves that we -- to.

To really both for markets in from fundamental -- name discussion over the past several weeks is this so called great rotation out of the safe havens like treasuries and back into equities back into stocks.

Do you believe it is it real is it happening I think a great location to people -- heard doesn't Greek catch word to kind of put out there.

I just believe what we're seeing is -- enough -- to go everywhere and with the Fed keeping rates for won't move lower for longer for a long time period.

It's gonna be hard to see bond market sell off does this number significant 75 billion cash flow -- stock mutual funds whereas spit in the past we've seen.

Drops.

-- -- definitely in the right direction.

The question is coming in after in a pretty big move in the equity markets my biggest fears that.

You kind of brought in retail investors -- the near the highs for those with the highs really are in the equity markets.

If they -- to suffer two or three months draw down on the other way to the way I know why don't go to stock market because there's you know this kind of behavior -- disputed.

Corporate bonds have been very popular among the Smart money over the past I wanna say two years now get a bump right.

But that the question becomes if rates start to go up.

Debt markets could face what a substantial possibly re pricing or even a liquidity queen squeeze how would that manifest itself -- how could people protect themselves from that.

So liquidity squeeze at the is still off the off table revenues all this money out there it's -- it would still there by that's not -- to provide support.

But I mean that doesn't mean the prices can change valuations can change.

I think that'd be more of an interest rate risk than an actual spread risk because indeed the economy is -- -- please -- it's on -- for.

The second half for a good part of the year we think he recovers and continue.

So that the corporates are based more on this kind of proof phenomenon and the -- fixed income markets like treasuries and agencies of mortgages are being manipulated so to speak -- Yet there is they support for the credit markets over time we just think that rates of both spreads entirely.

Corporate bonds probably artificial and print money right now a -- Then what's the strategy that -- recommend so we we think that -- especially for.

More broad based investors having the ability flexibility to have some cash available to that was about when rates to back up and when yields.

The spreads widen the little bit.

You can put my to -- -- having a very.

Our -- -- -- type of approach of having very short term treasuries so you don't experience the interest rate volatility get her from a duration perspective.

And then when Greeks to back up they did they present themselves as buying opportunities.

And they're very weird and that's what you have the cash secret immediately put it to work that's right that's right and and that's something that you are not really used to trading the bond market people just because bonds as long term investments that we put -- -- there.

But this is that -- entry into what we're gonna have to learn how to -- the bond market and I think that's that's probably what's different now that's what degree rotation to me doesn't resonate because.

You have to do both both -- -- -- bonds so when you talk about what to avoid you just set I'd be a little cautious about leaving too much in corporates but.

Is there something outright it would -- time to really shift out of that.

I think if you are long term investor -- you've had.

Large allocation to treasuries and in the long term part of the curve you can probably move down yield curve and that's that's what most people have shorter and shorter and shorter maturities.

And some you know looking for.

Where they're still valued -- oversees emerging market bonds.

Although there's always there -- -- emerging market kind of risk kind of connotation there of debt dynamics are much better than the US -- debt dynamics.

So there is that within the -- -- as always many rotations and I think the degree rotation.

I think that's a misnomer that -- them.

George can't -- us of no more yes Villa head of US rate strategy never sleeps upside down in his closet.

Because the bond market never -- thank you closing bell --

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