Treasury Market Range-Bound on Rates: Buchanan

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Nov. 13 (Bloomberg) -- In today's "Options Update," Bloomberg's Alix Steel and Michael Buchanan of Western Asset Management discuss why Treasury rates may be settling into a trading range in "On The Markets." They speak on Bloomberg Television's "Lunch Money."

We are in a situation where rates are going to be range bound over the next -- at least the next couple quarters.

Maybe you see the tenure fluctuate from 2.5%, maybe up to 3%. i don't think the economic fundamentals are there to suggest higher rates.

Will receive the short term movements, janet yellen tomorrow.

What kind of volatility do you think we will wind up seeing in the credit market?

When you take it back to credit, the things that have gotten us to this point, it has been a nice idea run for credit, investment grade or high-yield.

Does remain in place.

They are needed to the fed?

-- they are immune to the fed maneuvering?

To some extent.

The story with credit is not a right story, it is a fundamental's story.

The fundamentals that have gotten us to this point remain in place.

Strong balance sheets, strong free cash flow generation, conservative oversight of balance sheets.

There has been criticism that the credit market is overheated.

What would it take for us to get to that position?

We have that debate all the time.

There is a lot of telltale signs for when this market is going to be overheated.

For us, we are looking at bad companies getting access to financing.

We have not seen a lot of evidence of that so far.

It has been mainly -- you could argue that pricing is not as compelling.

Maybe structure, in high-yield, we are not getting as good call protection.

It is more on the structure side.

Bad companies have not gotten access to this market.

We look at that.

We look at corporate behavior, what our executives are doing.

Are they doing aggressive acquisition -- acquisitions?

Or are they according cash on balance sheets?

-- hoarding cash?

Confidence is not at precrisis levels.

What kind of stomach is therefore volatility within the treasury market.

I think people do expect them are volatile treasury environment.

Anytime you have a handoff at the fed, you can expect that.

The thing with yellen, we know we're getting.

She has been dovish.

We expect that to continue.

Like i said, this range bound, two point five percent to 3% 10 year is baked in.

I don't think the economic fundamentals are there to get higher.

The credit market is relatively immune to that.

I appreciate your insight.

"on the markets" again.

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


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