Reuters Insider - Yields won't spike much even with Fed rate hikes
23/05/2016 21:41
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Source: Thomson Reuters
Description: The yields on the 10-year Treasury will stay under
2 percent even if the Fed were to raise interest
rates this year, says market economist Peter
Cardillo.
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Transcript (May be auto-generated)
Stocks meandering in and out of positive territory this Monday. Let's head to
the New York Stock Exchange to find out why with Peter Cardillo. He is Chief
Market Economist at First Standard Financial. Welcome, Peter. Now, Peter, what's
behind this directionless trading that we're seeing today? Well, I think, you
know, the market is basically under Fed watch and I say that because, this week,
we have a lot of Fed speakers - in fact, we're going to be hearing from Yellen
later in the week. And of course, you know, most of the Fed speakers so far have
been quite hawkish. And I think what we're seeing here is the Fed's beginning to
pave the way for a rate hike. Now, that rate hike may come as soon as June. If
it doesn't come in June, it's probably- will probably come sometime in July or
September. Well, since you mentioned the Fed, the S&P 500, it's managed to break
a three-week losing streak even though the Fed signaled it could raise rates as
early as June as you pointed out. Can stocks continue to notch gains in the face
of a more hawkish Fed? Well, you know, I think the market is really not afraid
of the Fed's raising by 25 basis points. Look, you know, the evidence is that
the economy is doing quite nicely now. We've had a spring bounce here and if you
look at all the macroeconomic news that we've gotten over the past three weeks,
there's no question that the economy is probably going to grow close to 1.5%,
possibly 1.75% in the second quarter. So, you know, if you raise rates for the
right reason, the market is not going to be afraid of that. Okay. But the market
stocks, Peter, they've been stuck in a trading range. When do you see it
breaking out and what will be the catalyst? I think the market breaks out once
we get clarity from the Fed that they're going to raise rates. And I think that
we'll probably see the summer months actually respond to a firmer oil price and
to better economic activity. So, I think we could see the market break out after
the June FOMC meeting. And we keep talking about stocks, but what do you see is
the outlook for treasuries? Should investors worry about price declines with the
Fed indicating it may raise rates in the coming months? Well, I think yields
will probably back up but not by that much. I think the 10-year could probably
knock under 2% range and that probably means that bonds will go down a little
bit, not by much. Look, even if the Fed raises by 25 basis points, you know,
we're looking at, what, 50 basis points up from zero. That's nothing. I think
the economy can nicely handle that.
And you see, I guess, there will still be demand from perhaps overseas investors
for government securities? I think so. You know one of the biggest fears out
there is the British exit. Now, that could keep the Fed from raising in June and
perhaps doing it either in July or September. But I kind of think that Great
Britain is not likely to exit the EU. And so, that would be positive for global
stocks as well as domestic stocks. Okay. Thank you, Peter, for sharing your
views. My pleasure. Our thanks to Peter Cardillo of First Standard Financial.
I'm Fred Katayama, and this is Reuters