Salient to Investors:
For the first time since 2009, US bond yields are rising at the same time inflation is slowing, and Treasuries are offering the highest real yields in more than 2 years.
Andrew Wickham at Insight Investment Mgmt said inflation is not a big threat while it is very unlikely that we will see any major rise in interest rates for Treasuries from here. Wickham is buying 30-yr Treasuries and selling 10-yr Treasuries.
Bill Gross at Pimco said the 30-year bull market for bonds had likely ended as yields reached a low.
Warren Buffett feels sorry for people who have clung to fixed-dollar investments and said savers depending on bond payments are victims of policies to lower borrowing costs.
The median economist expects the fed to trim bond purchases to $65 billion a month at the October 29-30 FOMC meeting.
FRB Philadelphia’s Charles Plosser wants tapering as soon as the Fed’s meeting on June 18-19. FRB New York’s William C. Dudley wants to wait 3 or 4 months to watch the tug-of-war between the fiscal drag and the improving economy.
Chris Rupkey at Bank of Tokyo-Mitsubishi UFJ said that arguing that yields should be higher would be easier if there were some inflation.
Consumer prices are being held down in part by the slowest velocity of money in March since at least 1959.
Donald Ellenberger at Federated Investors said there is not enough value in Treasury yields to make them a good buy relative to other fixed-income asset classes, while inflation is a lagging indicator and tends to rise 2 years after the start of a normal recovery.
Total US wages are 43.8 percent of GDP, the lowest since at least 1947.
Thomas Simons at Jefferies said if the Fed pulls back from purchases too quickly the equity market will take a big hit and that will depress consumer confidence.
James Kochan at Wells Fargo Funds Mgmt said calls for the Fed to announce it will taper at its June 18-19 meeting are silly with the economy struggling to grow at a 2 percent pace, and expects 10-year yields to stay between 1.75 percent and 2.25 percent.
The median economist expects GDP growth of 1.9 percent in 2013 and 2.7 percent in 2014.
Robert Tipp at Prudential Financial said Treasuries are attractive based on the market’s too optimistic reading of economic growth rather than the current low rate of inflation, and says the Fed tapering prematurely risks jeopardizing the positive wealth effect working for them and the momentum of the economy.
Anton Heese at Morgan Stanley said when yields rise, inflation expectations tend to rise at the same time, but this time market prices suggest we might get a recovery with moderate or no real increase in inflation.
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