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Guggenheim Warns Fed May Delay Tapering Amid Debt Ceiling Risk

EconomySep 17, 2021 03:16
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(Bloomberg) -- The Federal Reserve may hold off on its tapering announcement amid week economic data and as the two political parties spar on raising the debt ceiling, sending Treasury yields further down, according to Guggenheim Investments.

The decision, which most investors expect to come in November, could be delayed to December as the “upcoming drama” in Washington surrounding the debt ceiling could lead to a market turmoil and possible economic disruptions, according to a note from the office of Guggenheim’ Scott Minerd. Recent economic data suggest that the Fed is unlikely to pare back monetary stimulus at the policy meeting next week, the note said.

“The upshot is that bond yields could fall further as a patient Fed and rising fiscal risks get priced in,” Guggenheim’s economists Brian Smedley and Matt Bush wrote in the note. They pointed that the yield gap between five-year and 30-year Treasuries is now flatter than it was in August 2020 when Fed Chair Jerome Powell unveiled a new policy framework to temporarily raise consumer prices, suggesting lower inflation expectations. 

Also, a tapering postponement would suggest markets are too optimistic to expect interest-rate hikes in early 2023, it said.

Minerd and his team have been bullish Treasuries for a while. In March, he said the firm’s model suggests 10-year yields could turn negative by early 2022. The $27 billion Guggenheim Total Return Bond Fund has gained about 5% annually over the past five years, beating 92% of its peers, according to data compiled by Bloomberg.

 

©2021 Bloomberg L.P.

 

Guggenheim Warns Fed May Delay Tapering Amid Debt Ceiling Risk
 

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