00:00 Speaker A
Where do you think yields should be given, you know, this sort of confusing backdrop for the Fed and what do you think folks should be doing in terms of uh, treasuries right now in terms of that strategy?
00:19 Speaker B
Yeah, I, you know, I think that the Fed is likely to cut rates about 50 basis points over the next couple of months and that short-term rates come down. Um, they have said that their current policy is restrictive, so cutting 50 basis points will still leave you with a positive real rate of interest, which I think is appropriate unless we’re in recession, we don’t want negative real rates. So short-term rates, intermediate-term rates probably come down, you know, around 50 basis points or so, but as you move out the yield curve, I think they come down less. We get more steepening of the yield curve because the inflation dynamic is still not under control and because we have a rising level of debt to be financed. So a steeper yield curve means that, you know, 10-year yields could come down maybe 25, 30 basis points while short-term rates can come down 50 or more. And I think that that’s kind of what we’ll see. For investors, I still think this is an opportunity to buy treasuries or, you know, uh high quality bonds. I would be very concerned about lower credit quality bonds, but still think this is an opportunity because the cycle of cutting is just beginning and that should bring rates down over time and you have a chance to to buy intermediate term high-quality bonds at these yields without getting a lot of reinvestment risk, um, as a short rates come down, but also without too much interest rate risk and exposure for volatility down the road.