Ten Year, Twelve Months, Two Percent discussed on Bloomberg Markets
The rates market is pricing in the federal reserve cutting interest rates by about a full percentage point by june of two thousand twenty including almost three quarters of a point by the end of this year to get a sense of whether how this will play out we welcome i rejoice irish chief u._s. interest rates strategists for bloomberg intelligence joining us from princeton ira thanks for being with us what is your sense of that that the market really is cutting of pricing in such an aggressive rate cut does that still make sense to you yeah i think it does you know given the fact that we have this aisle so a lot of geopolitical uncertainty that looks like it's could be potentially detrimental to the market the fact that we have in particular inflation expectations coming down from some survey measures but importantly from the inflation protected securities market so this is the tips market which basically says it looked into knock going to be a problem for a long time and because of that you wind up with you know lower expectations for the fed you wind up with a lower treasury yields and like know like you mentioned treasury yields now below two percent once again we'll see if it closes there that's two percent itself is not particularly important level but there's there's some important technical levels near two percent that if we do close at this kind of level you're really targeting about one and three quarter percent on on the u._s. tenure so this is sort of an important moment in the ten year trajectory guilds at the lowest since november twenty sixteen of course over in germany yields at record lows with the ten year having a negative yield of zero point three two percent i'm just wondering if people have parched out ira this idea of insurance cut which would be supportive of risk assets versus a sort of move to create more comedy shin in light of a weakening u._s. economy how much of a cut would be moving into the ladder territory which a lot of people view as negative for risk so i think so i think to the former today to the insurance cut if we're pricing and four cuts us on insurance cut right that's an easing cycle and given the fact that we're talking about over the next twelve months for interest rate cuts which given the fed really only has eight interest rate cuts could potentially do is quite a lot right so that would be a pretty serious eating cycle i think one of the reasons why risk assets are where they are are is the expectation that the fed is gonna cut a little bit so if the fed cuts in july and it cuts say fifty basis points which the market is pricing some chance although not and not not the base case scenario that the market's pricing in but but certainly risque scenario then then i think you can take that and maybe as an insurance got where they wanna cut just fifty basis points in july and then take a little bit more of a wait and see attitude and see if the economy recovers because in many ways when you look at the economic data that's coming in it looks very much like twenty sixteen where you had a pretty significant slowdown in global growth and u._s. growth and then we wound up rebounding from levels very similar to where we are now so if you do get that rebound in the second half of the year as you know many economists are expecting than the fed shouldn't have to cut that many times right so it's it i think that that would be the risk management type of environment that that some people are thinking of the should consider so fed chair j palace scheduled to speak at the council on foreign relations today at one o'clock given that he'd just spoke last week is there anything that can these types of environments and scenarios in these speaking engagements is this tone ever different does he ever say things perhaps that are off script how how is it a little bit different i think only if she wants to change the narrative so you know certainly there have been times when he's made some speeches like back in january when he certainly got bit more dovish she used a speech as an opportunity to to to kind of signal that that the fed wasn't going to continue hiking i i don't think it does point that there'd be any need to change the narrative because the market reacted as one would have expected given how the fed was i think that the q. and a. is always interesting because i would be i think that that ultimately people at this to see if our foreign relations are going to ask different questions than say the media did when he was at his press conference and the answer to some of those questions could be interesting so he's going to be asked presumably a lot about trade and how trade really get into weeds maybe of how trade defend us trade policy as impacting both the global economy in the u._s. economy and and therefore we know what monetary policy actions but you have to take in order to combat a slowing economy because of these kind of artificial in made policy actions that that the president's doing meanwhile you do have a growing number of investors saying that safe bonds i put safe in quotes the haven bonds are at this point getting a little bit expensive and are probably it's probably a good time to lighten up in blackrock is among those bonds in particular do you think there's credence to that well so again it depends on what your outlook is for the economy for the next six months and twelve months in particular based on our model if consensus forecasts are are realized to the end of the year then we're we're about fifty basis points to rich on tenure treasury yield so now if consensus doesn't play out and obviously you have even slower inflation and and weaker real g._d._p. growth and and a few other things then you wind up with you know getting to where we are now in fact you know we did a scenario now since last week that's jested that when we were at around two point one percent on the ten year we were pricing in for only one and a half percent g._d._p. growth for the next twelve months and you know if if that's the type of environment we're in and we're probably close to fair value but if you think that we're going to be able to keep stay in the mid twos in terms of g._d._p. growth then that's where that then we're we're very rich chief u._s. interest rate strategist for bloomberg intelligence on this subject to percent ten year treasury yield dave german boondi boondoggles all time lows once again the negative yielding universe expanding to a record high of more than twelve trillion dollars worth of sovereign bonds with my coast colleague paul sweeney this is bloomberg markets This is an ad from. 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