Guggenheim Warns Fed May Delay Tapering Amid Debt Ceiling Risk By Bloomberg
(Bloomberg) — The Federal Reserve may hold off on its tapering announcement amid week economic data and as the two political parties spar on raising the debt ceiling, sending Treasury yields further down, according to Guggenheim Investments.
The decision, which most investors expect to come in November, could be delayed to December as the “upcoming drama” in Washington surrounding the debt ceiling could lead to a market turmoil and possible economic disruptions, according to a note from the office of Guggenheim’ Scott Minerd. The note stated that recent economic data suggests the Fed will not reduce monetary stimulation at its policy meeting next week.
“The upshot is that bond yields could fall further as a patient Fed and rising fiscal risks get priced in,” Guggenheim’s economists Brian Smedley and Matt Bush wrote in the note. The yield gap between 5-year Treasuries and 30-year Treasuries has widened since August 2020, when Fed Chair Jerome Powell presented a new policy framework that temporarily raised consumer prices. This suggests lower inflation expectations.
It also stated that a tapering delay would indicate markets are not too confident to see interest rate hikes beginning in 2023.
Minerd and his staff have long been positive on Treasuries. In March, he said the firm’s model suggests 10-year yields could turn negative by early 2022. Bloomberg Data shows that Guggenheim Total Return Bond Fund ($27 Billion) has experienced a 5% increase in annual returns over the last five years. That beats 92% of its peers.
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