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Investors are unloading bonds at a record pace according to trim tabs retail investors sold about 48 billion dollars worth of of shares of bond -- so far.
Just this month of June now that is the highest in any month on record.
This is the ten year yield continues to rise with investors fearing the impact of a scale back in the Fed's bond -- program so.
Where do we go from here -- -- alibi is the chief fixed income strategist at -- and he.
I think it's really ridiculous to even talk about whether it was an overreaction.
Or an appropriate reaction -- it is the reaction that we got that.
Yeah and I think that's what.
That it -- -- now.
As I said I think it's a really great way to approach the question -- -- seen so far.
A lot of it has been driven by selling for we call fast money investors hedge funds unwinding bets in the shape of the yield curve.
But I think what we've seen in the relative performance of certain asset classes which are sensitive to those mutual fund outflows in reference.
For example municipal bonds and also more recently high yield bonds.
Is those sectors have underperformed but they've underperformed -- what we call technical rather than fundamental reasons and that's -- like to -- it it.
In the current investors should be allocating -- capital.
He -- just -- of the biggest fear in the market and and this may not be realized but the biggest fear are the leveraged bets that is.
Those who bought bonds.
We've borrowed money.
And if they go bad if those deals go bad we could see -- cascading event in the bond market like we saw with a financial markets for five years ago is that a possibility.
Well I think not only as a possibility it's what we've just seen over the course the last week -- so.
So leveraged bets in the bond markets tend to be a little bit more sensitive to what -- being relatively modest moves and interest rates because well.
A small lost leverage magnifies that -- so we've seen over the course the last week is some investors getting out some hedge fund investors getting out of the markets.
Increases in rates in the treasury curve that forcing other investors unwind their trades -- appear bigger losses.
That's what created a big move in the ten year yield over the course just a few short days.
The good news is today we seem to be -- stabilizing kind of returning more economic based fundamental trading if you.
Is is there any of part of the yield curve for any part of sovereign bond to.
Opportunities out there that you really like right now.
Sure -- geared to sticking to the US for the moment we look at the yield curve.
One thing that's really significant I think -- many investors have missed is that inflation expectations have ratcheted down.
Which means that -- after inflation returns are going to deal not just.
The fifty basis points higher at the bond market -- but another twenty basis points higher on top of that.
So if you take a look at the five to seven year area -- that's really the area where inflation expectations have ratcheted down the most and yet yields have risen the most.
And so that's relatively attractive they're also sectors specific areas that bond markets need time to be looking good right now well in particular and tax free versions have been a lot of folks have forgotten and they're not gonna forget for -- -- gonna have to pay their taxes that obamacare.
As -- new tax for investors who have over 200000 in income.
Tax free bonds are beginning to look better in light of that new tax.
Gasoline effectively the highest tax rate that he can have an income has gone up from the high thirty Sibley 43 point 4%.
Including -- health care tax.
And so for investor looking for tax exempt income.
That certain magnifies the impact of this income hats and always seen over the last couple days is that some areas of the municipal markets have reached a 5% tax exempt -- And that equates to about eight point 8% yield on a fully taxable -- -- incremental income you're getting and that is actually very powerful because of the tax exemption.
Good to see you Keith thank you very much for joining us as we watch thanks very fast I almost historic time for the bond market now thank you you about.
-- chief fixed income -- could be --
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