Bond market
Interview: John Hancock Funds---Evans, Barry---Fixed Income Strategist
>> let’s check u.s. treasuries now. 10eu year and five-year notes had most movement of the day and there wasn’t much. 10-year note up about .8. the five-year note up just a tick. on the shorter end of the curve no change. now the two-year note down by a tick. its yield 1.53%, unchanged. taking a look at the currency markets , the dollar is lower against all of its major trading partners now. the yen rise together strongest against the dollar in more an week after the japan “nikkei financial daily” said it may scale back its currency to protect exporters. the federal reserve meets tomorrow to decide interest rates. all economists surveyed by bloomberg see no change in the benchmark rate of 1%. barry evans is chief fixed income investor at john hancock advisors and he joins us at his office in boston with a preview of the meeting tomorrow. if we get a 1% fed funds rate tomorrow, i don’t expect a whole lot of change if the bond market , do you?
>> not a whole lot of new information will come out tomorrow. i think the fed, with the tepied employment report the past few months wants to keep short term rates low, squeezing money. not a whole lot of news.
>> everybody is going to ask you the same question. that is, what about the statement? they have changed the statement a little bit each time in the last couple of meetings. do you expect another change tomorrow?
>> i actually don’t expect a change tomorrow. i think you’ll see the same one we saw last month just sort of status quo. keep short trm rates low and where else can our 1% money go?
>> in that statement last month, they said there are signs the job market is improving. after the february employment report, can they still say that?
>> i think they will be dancing around that a little. the job market is moving sideways now. it’s hard to say. it’s strengthening a whole lot.
>> for the federal reserve, this is a kind of a nonevent. are they under any pressure to set the table for future change?
>> it’s hard to see the fed raising rates until there is pricing power on the consumer level. until mcdonald’s can raise the price of a big mac or ford can sell a car without a discount, i don’t think there is any hurry at all.
>> there is not much pricing power out there. we haven’t had a p.p.i. report in a while, but we see some movement in commodity prices. do you think that is going to bleed over into inflation at any point soon?
>> you can build a case that it’s starting to bleed, but it’s hard to see it moving soon. you see price cutting on a global basis. wal-mart is doing 1% china’s g.d.p. it’s hard to build a case for pricing power in the u.s. system right now.
>> if i buy a 10-year treasury note, i am going to get 3.7%. is that a good investment right now?
>> you need to listen to what the fed wants you to do. they are trying to push money out of money market funds, c.d.’s, defensive treasuries. bear a little more risk, take advantage of the high-yield markets . take a look at equities. they are yielding about the same as most of the treasury curve now.
>> in the high-yield market , where do i look?
>> my favorite sector still remains cable. they are generating tons of cash flow. in comcast there is so much money they are pursuing disney. i think that is probably one of the safer sectors in a high-yield market that rallied a lot already.
>> how about spreads at this point? they’ve come down. anything that is telling you?
>> obviously, spreads have come in saying the economy is safer, earnings better. it is through the historical tides and spreads valuation is no longer at your side, but it’s hard to say it’s time to exit the high-yield market . i don’t think it is. there are still $5 trillion to $8 trillion in defensive assets. it will seek a higher yield.
>> bloomberg did a story last friday about people moving into dividend-paying stocks. that is something you favor as well, isn’t it?
>> that is true. we think dividend yielding stocks are great place to be. it’s a cheaper sector of the equity market . companies have started raising dividends yet again. you get a 2% short treasury curve. you can get 2% most of the s&p 500. it’s probably only a smart place to look going forward.
>> we have traded in range for a while. we move down off the february employment report. we are still in a range though. anything going to change that over the course of 2004?
>> i think where we new year the cycle, we are moving from that cycle where you’re buying stocks with earnings increasing at an increasing rate. that transition to higher quality, larger cap stocks is going on now that’s sort of the retracement we are looking at in the equity market . time to move to the big high quality, multinational dividend paying stock.
>> where do we end the year with the 10-year on the yield?
>> on the yield on the treasury, to 3.75%, i think we will be a hair lower than this, but not a whole lot lower.
>> ok. i presume that means no federate increase from year from your point of view?
>> i don’t see it this year.
>> thank you, barry evans. chief fixed income investment at hancock advisors where he helps manage 15 billion in fixed income assets. higher recall material prices are fueling fears among some that consumer prices will start rising. we’ll have a report whether they will lead to inflation -- next.
