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All right -- -- speaking on the stock market tap the bond market volatility of late in fact US treasuries.
Suffering their biggest two day selloff since the collapse of Lehman Brothers two years ago so.
What's next for the bond market dealer body fixed income strategist at.
Jennie Montgomery Scott joins us now to weigh in.
But again big sell off the last few days our bonds starting the process of rolling over.
Well I think we're really starting a process of unprecedented volatility that's evident last few days and because investing -- looks the bond markets is kind of -- stable portion of the portfolio this volatility is traveling in terms of sort of short to intermediate term demand for the entire bond sector.
We've -- aggressive selling from international holders and that's been a lot of the cause the weakness the last few days.
You know how explain to me then how the bond market let's look at the big fundamental beyond political things going -- -- that that tax cut deals so.
-- that short term -- is the economy how many of the market also pricing in the concerns that tax illustration about our debt and deficits.
Sure and obviously the market take -- sort of balance of those two things but in this case that balance happens to be both going the same way.
-- course have the hopes that we'll get a little bit of an economic boost which should provide a little bit of an indication towards higher rates.
But in addition a tax cut plan at least has has -- usually initially envisioned it would added -- probably about.
500 billion to treasury nations over the next several years and -- that means more supply and the markets and a little bit weakness in prices.
In that you just mentioned to me to that international investors are selling bonds correct and I'm really -- sits -- kind of -- -- -- -- you know today we saw.
The students protesting tuition hikes again so when it seemed that that woods.
Drive the international commute back to the US.
Was typically see when there's a little bit -- froth overseas for example what's going on with some of the eurozone peripheral countries.
Ireland Portugal what have you we see dollars flowing into the US bond markets but after this initial -- last week maybe a little bit of optimism over Europe and the first couple days of this week.
We saw exactly the reverse and really as -- Japanese investors Japanese banks and insurance companies pensions there were some of the most aggressive sellers in the first couple days of this week.
-- you talk about market are fixed income volatility which you say is troubling indeed but.
And so range -- in the bond market right just between -- two forehand on the -- in the last two years since the financial crisis so are you look at Michael break out of these this range.
All that significantly we we don't expect -- -- 4% even in 2011.
Because that's a major factors really keeping things constraint.
Number one among those factors is very very low to nonexistent the potential even negative inflation.
Over the course of the next twelve months or so.
So we expect the bond market will remain relatively constrained and we're kind of in -- hide in mid level of our range right now.
But isn't a message in the bond market especially out the -- that inflation is gonna come in or is that just beyond your forecast at this point.
Well we look at something called a tips breakevens which is a difference -- -- -- treasury and inflation protected treasury to get an idea -- what the market thinks about inflation.
And truth since the QE2 program was announced we really haven't seen as breakevens increase saw that much.
The selling pressures we've seen over the course the last six weeks have nothing to do with inflation they're all about real yields and demand and supply for treasuries.
I so what does the volatility in treasury markets of late tell you about the success or lack thereof of the Fed's quantitative easing.
Well frankly what's happened in the markets after the Fed announced TVT has been kind of the worst of all possible worlds.
Number one markets don't seem to think it's gonna cause all that much more inflation stuck up tips breakevens -- indicating that.
But nonetheless rates have come up.
Which means that mortgage rates are more expensive that consumers are gonna have to pay more per month in order purchase a house -- -- -- the worst outcome of post QE2 policy has already come true so far.
Are we had in auction thirty year option -- dead at he saw the results but yesterday's that tenure auction was.
What do you know about the thirty year what do you know about the yield curve and I know it's been speaking up -- to expect that trend continue.
But we actually think that the yield curve particularly between the ten year and the thirty year portion of the curve.
Is about fair value right now if you call back in early November so the difference in yield between the thirty year in the ten year went up to a high of a 157.
-- was an all time high we've come down a great deal from there and there are more -- a 120 basis points or so right now.
Represents a fair spread considering additional risk for taking on that thirty year type -- Aren't here at a time thanks so much sharing -- that afternoon.
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