Salient to Investors:

Traders do not expect the Fed to raise interest rates until 9 months after ending QE, or late 2015.

Gregory Whiteley at DoubleLine Capital said a fed funds increase on the heels of that last QE purchase is no longer the consensus.

Joe Ramos at Lazard Asset Mgmt said tapering is not tightening, just a slowing down of the easing, and once the first tapering begins and the market sees it is small, the 10-yr yield will rise to a more normal level of 3 percent.

Tony Crescenzi at Pimco said yields will be capped around 3 percent into 2015 even with the Fed tapering as soon as January.

Barclays expects tapering to begin in March 2014 and ending QE in September.

Joe Abate at Barclays said the market is pricing a 9 month gap between the end of tapering and the first rate increase.

James Camp at Eagle Asset Mgmt said Fed difficulties in May and June preparing the markets for a tapering suggest it is unlikely they can thread the needle with the exit of QE so has cut holdings of mortgage securities and bought asset-backed bonds, focusing on buying higher-rated credits and debt maturing in 4 to 7 years. Camp said the markets generally conclude that tapering will be disruptive to the yield curve and to risk assets, with few investors having made significant changes to their holdings in anticipation and many wrongly believing they can get out in time.

The term premium on a Columbia Management 10-year debt model is above the average of the last decade and shows investors see bonds as close to fairly valued.

Krishna Memani at OppenheimerFunds is bullish on corporate and municipal bonds, saying we hope borrowers have learned a lot from the summer episodes of rising yields – it is a good thing for the Treasury market and for the corporate credit sector.

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