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We know a lot of you have piled in to T bonds because of course most people look at them as the ultimate safe haven -- yields on the ten year treasury -- in Europe.
Fourteen month high.
After an auction of 21 billion dollars in the ten year notes drew the weakest demanded ten months really anemic behavior here.
Is this the sign that the bond bubble many have been calling for is about to burst we've got a debate over this Anthony malaria LPL financial senior vice president fixed income strategist.
And Christian -- FX CM senior currency strategist join us.
Is Christian are -- is Anthony I will start with Christian at the moment you are are of the belief that we see there might be a bubble popping just at a time.
When there's really no news yet out of the Fed or anything else what's going on and why -- -- so adamant in your belief.
Yeah that's right and I think that we're kind of in the final stages of the the thirty -- secular.
Bull market in bonds I think because.
Because of the secular trend we've seen we have a generation.
Of professional investors have been conditioned.
And try to achieve a certain level of return that simply not there in the market the moment.
The Fed through the use of deserve another policies.
Because distorted the efficacy of the capital markets and now -- investors because career as our are forced to direct Cheney's returns.
Like taking on risk and credit they normally would not do in my view this is led to a concentration dangerous concentration capital and segments like high yielding emerging market bonds.
Historically when you get you get Californians threw a marketing go slowly and exits quickly.
-- and that's what actually -- the crisis.
You know Anthony he's not wrong because you look at the pile on trade of let's just say hi -- punts forget Treasury's 300 billion worth of high yield bonds came to the market last year alone and that was a new record.
So clearly there's certainly a lot of activity it's been a momentum play yet you don't believe.
That we see a bubble that's getting very thin on the skin and about to pop why not.
Now I I don't I don't see a bubble and you know it's an expensive market share and no question about that when we look at high yield for example you mentioned the 300 billion a lot of that the bulk of that fact.
Was refinancing site and they get a look at the numbers there and to me that's that's not mean at the fringes yes and speculative behavior but we're not seeing any as signs that you signed 2007.
Or even beginning -- 2000.
About what we've got our banner read -- -- that says that the Pimco total were from return from which is the world's largest bond fund billions and billions -- it that they have.
Listened to tiny scaling back two percentage points of their treasury holdings but.
It's enough to make people interpret something is about to happen is that an incorrect interpretation.
But I think that that fund has been actually increasing on balance over the big it over recent times -- a small decrease.
I view this sell off in the bond market is just one at that we've had one -- Another that we've had over the past few years we had it happen in March 2012 we had it in October 2011.
Tenure got as high as 240.
Before coming right back down so I think that 240 could be the upper end of this sell off I think the market.
Quite frankly has confused tapering with the Fed interest rate hike.
-- the Fed needs to do a better job of this distinguishing -- -- between the two next week but.
Again there are good reasons -- market is expensive low inflation fed on hold -- still in recession.
I do you see higher yields over the course of the year but I think two and a quarter to 250 is probably the finishing spot for the ten year and year end all right we're almost there -- -- they're bad bear market and in my view here I think -- liquidity has fueled the sell off spent and I I think it's got a little too.
Far better Christian -- you both -- out your cases let's say your right what went does sound what was the action of a bubble popping look like and sound like and feel like for people watching right now who might own treasuries.
A mandatory trying to -- -- I think they think they're reach for yield the global phenomenon I think we're seeing an emerging markets right now.
You know currency is emerging market currencies and bonds and getting routed and I think it's the the beginning stages -- a balance of payments crisis.
Doesn't take much for about payments crisis turn a conference -- and develop markets I think that's kind of what we're starting to see now I mean what -- heard unemployment -- trying to look at what we would all feel.
May lead to an -- a lot of because of the guiding hand of the -- a lot -- that is you know a lot of professional investor sentiment is completely based on water and -- they gonna do -- not gonna do like it's it's an area where they -- next.
Next week -- five -- ten million and then into months and got to go do they gotta increase purchase by a hundred million and I can beat me.
The point where you know investors say it was an emperor has no clothes there's a lot of -- trade him based on nearly omnipotent powers of the Federal Reserve.
Everybody hit I was trying to figure shows and its -- central -- -- a history of it's a history of failure.
-- -- Anthony let's let's say you are correct you still believe that there might be better opportunities different opportunities in bond land.
That are pretty attractive at the moment what are they for our viewers who are -- of knowing.
-- I think longer longer term was I think get the little weakness we've seen it in corporate bonds high yield bonds I think those are ultimately.
Buying -- sisters it still think that's where your best total returns will be over the balance of the year and perhaps longer.
This -- up and treasury could be -- a potential.
A short term buying opportunity given how -- -- have -- but as you mentioned that ten year treasury -- not enough do not a ringing endorsement of the treasury market so not quite ready to bottom out I think we're in that process that's probably.
A little too early I also think that longer term we're getting an opportunity in Munis although I think that market is still very weak probably need another week or two before we see something more meaningful there.
Anthony Valeri Christian -- both -- very firm ideas of whether we're about to see a bubble pop or not thank you both very much for joining us.
-- like you poured trillions.
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