US Treasury Secretary Scott Besson stepping into reign and surging borrowing costs yesterday that at least doubling the Treasury's long-term debt buybacks and sinking 30 yields of multi-year highs.
But with the government funding these buybacks, there are questions, including whether this is a permanent fix or a band-aid for deficit-driven yield pressures at the same time this morning, efforts to cool off the bond market are already losing steam as. reverse course and climb higher while here to break down the bond rally as well as the interest rate outlook here in the US as well as many bond opportunities as Chris Bergatti, the CIO for SWBC.
Chris, good morning.
Thank you so much for joining us.
Well, here we are on Thursday morning and we are looking at yields climbing yet once again.
So what do you make of the past 24 hours in the US Treasury markets?
I think it's been an interesting period in Bes attempt to do something to help the bond market with regard to lowering rates via the buyback program, though it's a, a nice effort.
I think your point is well taken.
It's a little bit of a band-aid.
It's only gonna possibly AA little bit more than 44 trillion in terms of the, the amount of bonds.
Being redeemed rather, the monthly deficit in terms of the difference between bonds outstanding and new programs coming out is much, much larger.
So it really is not going to have that much of a material impact and I think we're already seeing it.
The market has already relatively quickly rejected the lower rates and it's started to climb higher again.
Yes, I do want to get your perspective when it comes to monetary policy, in particular the Federal Reserve, as well as uncertainty surrounding Chair Warsch's rate path, especially given that inflation does remain sticky and volatility high.
So what is the bond market currently telling you when it comes to expectations for monetary policy here in the US?
Trying to They want to see some more aggressive action by the Fed to show that there's decisive policy to help the interest rate scenario and fight inflation.
Worsch came out talking relatively tough, good news for the bond market.
It was well received initially, but he's had a couple of periods here now where he really hasn't had any effective policy change, and I view his statements that the that the market is doing the job of the Fed.
That may be somewhat.
True, but I also think the market does not want to do the job of the Fed, and so they're going to be punishing the market a little bit more than necessary.
And so that's my concern.
I think if the Fed does come out with some decisive action that will ultimately be viewed as a positive by the market, and that will ultimately help the rates picture stabilize.
We need to see the inflation scenario coming down, and thus far it has not shown material progress to the degree that it probably should.
Yes, and I'm sure there will be much more focus on Jackson Hole, Wyoming next week, especially given what we're seeing this week.
But while I have you here, I do want to get your perspective on Muni's.
Municipal bonds have had to navigate a lot of volatility alongside Treasury.
So given where yields are right now, how attractive would you say tax-exempt MIs are for income investors?
On an after-tax basis for individuals in the higher income tax brackets, it's definitely a very interesting and attractive vehicle.
The returns are very attractive relative to taxables.
It's obviously a very safe and a long understanding that the market is relatively safe and relatively liquid during those periods of time, so investors should have good opportunity.
The supply picture has been very strong this year.
My prediction is to top somewhere between 590 to 600 billion.
In terms of new issue supply, we're a little bit past that past the halfway point right now this year, and that pace looks right on schedule.
So that's a good thing for the supply picture, which has obviously created a little bit of opportunity for yields to be a little bit more attractive and higher on a relative basis, but also an absolute basis.
Absolute treasury yields being higher and municipals work as a function of that.
They're more attractive right now, and investors might be close to locking in some really attractive long term yields that we have not seen in many, many years.
And finally, Chris, before I let you go, sovereign yields in Japan, France, as well as Germany hit multiyear highs earlier this week as well.
So when it comes to developed market global bonds, do you think they potentially offer better value right now than US debt?
I think they offer a slightly better value, but the risk is a little bit skewed to the downside in terms of, I think the global inflationary picture is a little bit more robust.
Inflationary picture is a little bit more of a challenge globally, so those yields could still trend a little bit higher at a more aggressive pace in the domestic market, but on a relative basis now versus US, there certainly are attractive options.
Well, I appreciate your time today, so thank you so much for weighing in and sharing all of your insight and perspective.
Thank you very much.
