Bonds Take Bumpy Ride on Fed Taper Expectations

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Dec. 3 (Bloomberg) -- Brad Friedlander, managing partner at Angel Oak Capital, examines the impact of Fed tapering expectations on the bond market with Bloomberg's Julie Hyman in "On The Markets." They speak on Bloomberg Television's "Lunch Money."

What the fed has been doing.

The yields have been down for the first time in a week because we have seen them it of a push up and yields in anticipation of when tapering is going to happen.

How do you position yourself?

There is an incredible amount of uncertainty we have seen.

In my memory in the past two weeks or so, i can count five extreme moves from either imminent tapering to distant tapering.

It is quite a move.

We like to stay out of the fray as much as possible.

We tend to be more credit oriented in our investor -- investments.

This tapering will come at some point.

The fed has still not been able to prove that tapering is not necessarily tightening.

Either way, you are seeing a little bit of a push-up in rates.

How is that playing through to credit?

You do have a ripple effect there.

Limited reaction at this point.

In june and july of this year, the shock that we saw was pretty significant.

At this point, the credit markets are not as dependent upon the rate situation that we have right now.

They are acting more independently and reacting more to fundamentals.

And where do creditors look for income?

It will be more of a struggle as the rates go up.

Where do you think we will cease in good profit generators for you guys?

Weekend to be fond of a couple -- we tend to be fond of a couple of areas.

One is non-agency backed mortgage securities, the private side of the mortgage securities.

The non-fannie and freddie.

Exactly.

There is a tailwind behind housing at this point and fundamentals are improving, especially on a year-over-year basis.

Home prices are on the upside of 13% year-over-year.

We are also looking for a rising rate environment because a good portion of that asset class is adjustable in nature.

When you think fixed income in our view, you do not necessarily have to think defensively how do i not lose money?

You could actually make some money.

What about fannie and freddie and the debate over what is going to happen to them?

Will be your main government entities or be privatized -- does that have applications for the private side as well?

It is a limited impact.

These markets have been much more reliant upon as far as qb is concerned, the fannie and freddie -- reliant upon, as far as qb is concerned, the fannie and freddie have been dominating those areas.

This eventual movement away from domination by fannie and freddie in the mortgage market and gradually moving to privatization, we are seeing that.

We are seeing new issuance being created, and even some nonbanking firms that are upstarts at this point, being able to compete with fannie and freddie.

You are seeing that with some of the loan rate out there right now.

Interesting.

Thank you for coming in.

Good to see you.

This text has been automatically generated. It may not be 100% accurate.

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