Salient to Investors:
Columbia Management Investment Advisers says the term premium on Treasuries reached 0.46 percent this month, versus the 0.40 percent average in the decade before the 2007 financial crisis minus 0.5 percent as recently as May.
Bond bulls say the highest inflation-adjusted yields since March 2011, the slowest pace of increases in consumer prices since 2009 and below-average economic growth will support debt markets.
Laurence D. Fink at BlackRock expects rates to increase. BlackRock and other bears say tapering signals from the Fed, the fastest job gains since 2005, and stock indexes at record levels will diminish demand for fixed-income.
Jack McIntyre at Brandywine Global Investment Mgmt says he is long Treasuries because yields do not need to go significantly higher to attract investors, and the kryptonite for bond investors, inflation, is not visible.
Zach Pandl at Columbia Mgmt said term premiums show no valuation case against Treasuries as in a developed market economy with slow inflation, a term premium of 50 to 75 basis points is normal and at 40 basis points you’re approaching fair value.
The median economist and strategist sees yields ending 2013 at 2.62 percent, versus the average yield of 5.37 percent over the past 25 years.
Ira Jersey at Credit Suisse says 10-yr T-note yields will range between 2.40 percent and 2.75 percent unless something dramatically changes, which we don’t expect over the next couple of months.
Mitchell Stapley at Fifth Third Asset Mgmt expects yields to end 2013 around 3 percent and prefers commercial mortgage-backed debt, TIPS and speculative-grade corporate bonds to Treasuries.
The IMF cut its forecast for U.S. growth to 1.7 percent from a prior estimate of 1.9 percent in April.
Freddie Mac said the average rate for a 30-year mortgage was 4.51 percent as of July 11, the highest since July 28, 2012.
David Brownlee at Sentinel Asset Mgmt recently bought mortgage securities and Treasuries on rising rates and slowing growth with no inflation. Brownlee said the Fed made a colossal blunder in suggesting it could taper, and expects the bond market to soon focus in on deflation.
Kevin Flanagan at Morgan Stanley Wealth Mgmt said the market had to re-calibrate its thinking as part of the problem was the “QE-infinity” complacency, and everyone was on one side of that trade.
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