Salient to Investors:
TrimTabs Investment Research and the Money Fund Report report bond funds saw $61.7 billion of withdrawals last week.
Market bears say yields barely exceed inflation, leaving little relative value in bonds as the global economy improves. Pimco, BlackRock, and DoubleLine Capital say the worst is over because the securities are fairly valued.
Richard Schlanger at Pioneer Investments says we are at an inflection point, and is investing in short-term floating-rate notes and non-agency mortgage-backed securities.
Real yields on 10-yr Treasuries are 1.09 percent versus 6.4 percent aggregate earnings yield of US stocks. The gap between inflation and 10-yr yields is half the 2.2 percent average for the past 20 years.
Michael Lillard at Prudential Financial said rates going higher clearly will impact growth and take some of the steam out of the housing – housing is most sensitive to interest rates and the mortgage rate has up a lot, not just because of Treasuries but because mortgage spreads have widened.
Jeffrey Gundlach at DoubleLine said July will not be the same as June, and there are profits to be made in the bond market before the end of the year.
Bill Gross at Pimco said 10-year T-yields may fall by 25 basis points as yields and spreads over Treasuries were too low 2 months ago and the Fed tilted over-risked investors to one side of an overloaded and over-levered boat, so stay calm.
Financial institutions need to buy as much as $5.7 trillion in safe assets including government bonds by 2020 to comply with Dodd-Frank and BIS.
Ashish Shah at AllianceBernstein said we are seeing an overshoot as it takes time for institutions to make decisions.
Peter Fisher et al at BlackRock said tapering is not Armageddon and is actually healthy because trillions of dollars of stimulus have failed to spur much credit growth and economic activity.
Martin Fridson at FridsonVision said Bernanke may have altered investors’ views about the Fed’s goals more than he expected and it is unwise to conclude that everyone who’s going to leave has already left.
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