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Above zero today especially from fund investors.
Bond investors head for the hills as the yield on the ten year treasury -- -- 52 week high but.
We've got someone.
Who says he's not only.
Not bailing on bonds he's actually buying them for the first time nearly three years John Donaldson does -- -- vice president.
And director of fixed in come and he joins us now now John.
Despite the fact that they're treasuries -- were you buying today even before.
Ben Bernanke's statement led to that drop in the price of bonds.
Yes we've recently bought ten year treasuries -- for the first time in three years why why why -- small -- What a couple things in your favor won the additional yield spread on almost every other secretary narrowed to levels it just didn't compensate you.
For the extra risk involved.
The treasury itself relative to inflation had at a sharp reversal in recent weeks as recently as early April.
The ten year treasure is trading seventy basis points ball low.
The implied inflation level on tips.
As of today it's thirty basis points above the implied rate of inflation.
You know that's a reversal of a hundred basis points on -- base of -- 2% yield.
In a matter of weeks that's a dramatic change relativity underlying rate of inflation.
Also third reason the improvement in the federal deficit.
Most recent CBO estimate has that down around 640 billion that's well below where it'd been over a trillion dollars.
As a percentage of GDP that's down from ten point 2% to approximately five point four.
That's a piece we think the market is such.
Believe homeowners -- -- -- like I got to push back a little bit on that don't you think that that's a temporary phenomenon I mean the fact this.
You know they race they raise a lot of tax rates so a lot of revenue came in.
But if the economy slows -- known as a result of course Bernanke saying it's not going to but if it does.
Then the deficits gonna go back up again.
Well that the others and number -- in that I think we look at the budget has two components one that underlying structural.
Which is about half that you know which is the basis of what's there now.
The cyclical factor had been taking care of you know yes -- the economy rolls over goes back into recession your back into cyclical problems but.
Bumping along its slow growth of one and a half 2% -- Anywhere in those bands that's in the -- charges is acceptable and isn't gonna damage that deficit that much and it does give you a lot of capacity.
For the Fed to do any kind of easing up on purchases -- so called tapering without impacting the supply demand -- the market which.
Let me -- that you mentioned GDP you know what asking about the change your projections from the Fed today what you make of this or don't.
In March it was 2.3 to two point 8% growth for 2013.
Slight change 2.3 to two point 6% growth for 2013.
-- that concern you at all.
That we're already halfway through the years so you know that sort of already happened up and a lot of that was the first half of the year.
Okay so what I need the -- our.
Alyssa about the them -- let's talk about that tape and then I mean you're -- actually got skin in the game there were talking about is there are right or wrong way for them to do.
In the second half of this year which again today we heard the Pentagon a -- I think it's important to start that the reduction the budget gives them silly way to do it.
The valuation -- gives them a little bit leeway to do it.
I yeah I think it's going to be quite tentative it's you know for lack of a better phrasing baby -- they're not gonna.
-- and he really made this point emphatically they're not going to slam brakes on its going to be.
You're down by a very small increments see how -- goes you know they don't what they don't want to be doing is.
Dropping it by 2040.
Billion a month then back up -- -- backed down pointing and back up for forty.
It's going to be -- -- for lack of a better where -- know they don't like that phrase but I don't think any of us a better word for it.
Yeah I just -- in pieces in increments.
See what happens the other data comes in you know there's a lot of room for them to -- do that.
You know it without -- hammering the market certainly.
John -- -- mirror and like I gotta -- always this is a great time for speculators but it is a lousy time for savers and -- have you ever seen a tougher time for fixed income.
Now we've I've been at this since 1976.
You know what's happened -- this you know zero interest rate policy.
Is it is definitely tilted to benefiting borrowers at the expense of -- right -- -- very tough we see that your.
Go ahead finish your -- we see that every month with a maturity -- we see it every single month with clients bonds that mature.
And what you get the difference between the coupon that matures and what your reinvest that is that the pressure on income from that side.
The clock and get as John Donaldson -- -- for vice president director of -- thanks -- and come thank you so much great stuff appreciate you both very much --
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