EXIT LGHTS LIGHTING UP?

Bill Gross, chief  investment officer of bond giant Pimco is a guy who of late  knows a thing or three about controversy, revealed in an interview Friday that whenever the Fed starts to crank interest rates back up, they need to be careful.

Gross offered June 2015 as the possible starting date and that the yield on the 10-year Treasury note should not go above the 2.5 to 3 percent range owing to still some structural problems in the economy such as "lower real growth" and job displacement he blamed on technology advances.

He noted too what's important is when, how rapidly and where the Fed stops is of concern to both equities and bonds. Based on a recent survey of analysts the starting date for the Fed has been moved from the third quarter of next year to the second.

Gross warned the rate on those 10-year Treasury notes should be kept in the 2.5-3 percent range for "now and the next few years depending on how long the Fed continued  accommodating the market. He also expressed that the Fed should hold the rates once they start back up at 2 percent until sometime in 2017.

Rates have been held near zero by the Fed since 2008.
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Maybe junk bond investors are apparently starting to see the lights lighting up the exit signs.


Yield-starved investors might be taking their cue form the Fed's recent uncharacteristic comments about the asset class and its "very, very lofty" levels, according to some money managers. Recent figures show that mutual funds and ETFs that invest in the high-yield or junk bond market have witnessed resumptions that totaled around $2 billion in the most recent week that numbers were available.

The outflow, according to Lipper, was the largest since late summer 2013. In mid-June yields hovered near 4.8%, a record low. As of  mid-last week the were yielding 5.1%, still low by historical measures but perhaps a sign of things to come as investors begin heeding the Fed's words.  

In some quarters there are rumblings that corporate bonds might be next. Liquidity is always a concern in what many perceive as over-valued areas of the market.
t. man hatter