Bill Eigen of JPMorgan Asset Management is one of the investment directors of this company and said as CNBC that Fed chief Jay Powell is now in an unenviable position. At the same time, the central bank is trying to do the best and perceives that stock markets are high, inflationary pressures continue to continue and the economy is growing between 2 – 3 %.
Eigen also mentioned that the risk spreads on corporate bonds lie very low and the central bank that follows the whole situation can ask: are rates really so restrictive? Many indicators indicate that the markets and the whole economy are doing well. But the government is pushing the Fed to reduce rates, although something like this usually occurs in the situation. That is, at a time when risk assets are under pressure and the economy weakened. The expert now is on the markets of the market, which is reflected in the cryptocurrencies, but also by the low spreads on corporate bonds. «The environment records risky assets, everything this government is doing in the economy of turbo.» However, this may not comply with low bond yields, Eigen pointed out. According to him, investors can do well when they are looking for opportunities for assets, their prices are not at the current situation. According to him, the duties will also add duties to inflation pressures. «I see it directly at construction costs related to steel prices. The construction projects are clearly visible an immediate decline in margins. Especially in this area, wages are unflexible, now they even grow,» Eigen added. Investors should «stop living in the past and believe that rates will reach zero in the foreseeable future.» In particular, this applies to bond investors who, according to Eigen, could actually dream of zero to zero. Longer -term rates can then affect the fiscal outlook and the high budget deficits. As long as this situation persists, these investors will be difficult. In the end, the central bank rates can really go down, but according to the expert, it probably does not reduce other rates, including the mortgage. Precisely because the «longer end of the curve», ie the yields of longer -term bonds, do not have to have a willingness to decline. So, according to their words, it is now «a big fans of risk assets». The purchase of less risky corporate bonds is not the solution, as their risk spreads are extremely low. More interesting alternatives may be dividend shares such as telecommunications companies or utilities. Source: CNBC