Bond Rally 'Smacks' of FOMO: Franklin Templeton's Desai

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Bloomberg 11/18 04:02 · 7270 Views

Franklin Templeton Fixed Income CIO Sonal Desai says the recent bond market rally has gone too far too fast and there isn't enough economic data to support Federal Reserve rate cuts. She speaks on "Bloomberg Surveillance."

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  • 00:00 So you gonna clip the coupon like you'LL grow stood at the bottom of pimpco years ago or can you find total return and fixed income next year I'going To Be more triping the coupon you're getting the income because I don't buy the rate cuts that the market is chricing in right now markets are christ I would say for beyond the perfect landing right given that then what's your call on the bond market now you know we'VE had this big correction from five down to four fifty down to four forty briefly.
  • 00:30 Thirty this morning was'the call now it's true it's been too fast I don't think it's underpinned by fundamentals and I do'think we're probably gonna get a reversal so I think that closer to five is a lot closer to where on market needs To Be does it happen in the next weeks two weeks or even this year as we rally into your end meeting not but the reality you know if the fact talked about financial conditions and then unsurprisingly has stopped because at every level including.
  • 01:00 In what we're hearing in terms of wage agreements at every level I think they do remain risks to inflation and while I think the Fed will certainly has there's a lot of data supporting the Fed remaining on home there isn't enough data supporting the case of great cuts next year that the market is pricing in right now so that's about which I think is unlikely to materialize so now let's get you a view on flows please.
  • 01:30 Um a lot of people are waiting for the extension trade people going from the front end to locking in higher yields for longer have yield moved down too quickly without that extension trade or is is move down actually exccelerating the extension trade so you know I think that right now we continue to see a I think that the the speed has been too much so I still think that the serious risk to the crate I don't think this is the real extension CRA.
  • 02:00 At because there remains a lot money at sidelines so I think it was too fast and I think that we will see more volatility when you see some fifty sixty basis points coming as quickly as we have seen it come it's max much more of fear of missing out it because it's happening at the same time that we're seeing for example high yield rally all we down to three five by seeing yesterday was a thirty basis the thirty percent chance of red cards beginning already in march if you need that kind.
  • 02:30 A narrative to support these types of rates I don't think that's realistic so as those red cuts against start getting christ out I would expect any new yields to start moving up as well and there is the last piece on flows which is the fiscal DeFicit the fact that all the next three months six months at some stage Japan starts moving and we're going to see additional support weve the long end of the yield curve so there are just many reasons not too.
  • 03:00 We feel that this is the beginning of that serious rally.