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-- treasury yields are at the highest level in over a year finally taking some attention away from those attractive dividend paying defensive stops.
-- how can you play this market.
Fixed income strategist deal -- is here with his take indeed.
Listen I was adjusting to read Goldman Sachs warning that the widely predicted to bomb set off is finally happening.
Do you agree.
Well I I think it's evident in the market moves that have occurred over the course the last month or so we have seen some substantial selling.
That said going forward I think there -- a lot of factors that are going to mitigate yields from rising very rapidly in the near term.
A number one of those being the fact that economic conditions while a little bit better aren't accelerating and that greater pace.
But since -- on does as far as the ten year yield what are you expecting over the course of the next say three to six months.
Well I think one thing is certain we're gonna see a lot more this volatility you know one of the things that Bernanke did last week was effectively.
Put the markets on notice that -- we need to pay more attention to incoming economic data.
We've been relatively insensitive to that data for a couple years prior -- certain to see a lot more volatility and I think the key strategy when you see that degree of volatility.
Is to keep a little bit of cash from the sidelines -- be able to capitalize on any sell off that we do see once again but that discredits -- office ten year yields in the 2.2 percent -- okay.
So you know like a -- should rise in the you know what I think is actually pretty good for the market and financials especially -- those that say that that is actually probably the best scenario would you agree.
Well -- -- -- measured and steady increase is certainly a positive scenario you know banks and financials make a lot of their money by playing the yield -- Actually borrowing short from depositors investing are making loans longer on the yield curve and so little -- allows them to make loans at a higher interest rates.
At the same time loan demand right now is pretty anemic -- clients -- that financial institutions that we speak quit.
So so as a result in normal environment while higher interest rates and along and could be beneficial for new loan originations.
The fact that loans aren't being made it very passed fast pace right now kind of limits the benefits yes that's true what about -- fixed income areas what about the maybe Muni bonds corporate bonds what -- -- thoughts on those.
Sure all the high yield market is certainly had a tough couple of weeks with spreads to treasuries widening and good bit here along with the volatility.
You know we we think the high yield market for sort of six to twelve month horizon is fairly attractive particularly -- -- shorter on in terms of maturity to limit interest rate risk.
You know I -- -- in the -- sector in particular we've also seen yields the combination of the sell off.
And a little bit -- spread widening immunities.
Preach about the highest levels in the course of the year itself and it coming an a couple of good seasonal months for the media markets I think this represents a good short term buying opportunities.
We haven't talked about the fans and there you know a much talked about tapering efforts -- -- again and again will it be done smoothly.
We take the worst case scenario that is not done smoothly.
What kind of impact are we gonna see in the bond market.
Well I think -- -- obvious they're pretty significant impact but one of the things that they wouldn't -- any increase in rates from the Fed stopping buying his.
It also affects inflation expectations.
So we kind of break down interest rates into real interest rates -- are driven by supply and demand.
-- inflation expectations now of course of the Fed stops buying that weakens demand.
Real interest rates rise but at the same time it reduces the market's expectation of long term inflation risks so we'll see some muted effect from that.
Our base case is that the Fed actually -- -- quite a slow pace much slower -- the markets are perhaps anticipating over the last several days.
Yes so much being made of this great rotation I don't know is that just the -- Phyllis there's some reality out of bonds and into equities because I don't think -- at the place.
To everyone is either assumed its.
Operating at was just not happening until what you thought.
-- to -- the -- -- really came from there analyst paper last September I believe in kind of gone on at the beginning of this year.
You know one of the issues we have is that a large portion of the bond market are owned by investors who are essentially not flexible.
And that includes investors like banks insurance companies and pension funds who functionally speaking can't sell out of their bonds in Iraq but quit.
So when you consider that part of the market's sort of being locked down -- there is the potential for the sector rotation on the margin it just can't be full scale can't -- broad.
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