Ashish Shah, the Head of Global Credit for AllianceBernstein, on the Bond Market and Inflation

Well our text question of the day is how much will you or how much did you spend on your daughter's wedding are -- number is 68680. Clearly talking about interest rates in a moment but right now we wanna get the opening bell report from June -- down on Wall Street June what are we got for opening bell numbers yeah okay very well it's. No let's. Maybe they re looking at me calling archive your -- wicked witch of the west. Why I icy red across the board -- -- Dow's down sixteen. NASDAQ is down six S&P down six numbers still moving as they speak. Tenured US treasury at one point. 852 down slightly gold is also down 25 dollars ten cents. Oil trading down and have giving his last dollar fine now like -- is that 96 dollars and 88 cents a barrel when will we see that our local pub. Would you I paid 375 yesterday would you pay for your last count. I think it was like 380 that was over the weekend weird in my town great -- dry as we go to the high school to a track -- last night. The Mobil station was 395 gallon -- always side so late I swing around the other way and I go by the Irving station and it's 375 gallon. That's a big difference in assets and two stations are not even a quarter mile -- from now mobile is is. It's like you need to collateral is sad feeling extra special answer -- I don't know what it is but interesting right hey we're joined now by hashish shock he is the head of global credit. For Alliance Bernstein he joins us today talk about the global credit market. -- she's welcome to the show thank you for joining us. -- you know I've been watching the ten year treasury note and I I'm not sure where it is right now I think it's about what one 85. How much lower do you think the yield on the ten year treasury can go -- Says that the great question I think to answer that question you have to understand that part of the reason that were below 2% right now on -- notes. Is that there are a significant terrorism around the world. Don't we we think that as long as you know one of the major risks out there at I -- Europe breaking out. Doesn't happen but we're gonna see in this range between one and three quarters then and probably 240 to fifty. But you know that is far from any given at this stage. I was talking to another bond trader though and he said hey what what's stopping us from going the same direction as Japan if you look at the you know we're about ten years behind Japan but. -- you know if if we are in fact becoming another Japan or Japanese type economy. Isn't it reasonable to expect that the yield on the ten year -- treasury will drop below 1%. -- it if that word like a likely outcome it I think that that would be right but the reality is that you're you're talking about 5% growth. Nominal growth this year and with the 5% growth at 2% -- no it doesn't make any sense. The only reason or trading at those levels is because they just aren't enough forestry assets out there for people to protect their portfolios went. We're really gonna see 5% growth though she's our growth is gonna be about 2% isn't. It's 2% it's 2%. Real but it's 5% nominal and that's because of that inflation that's going on those hired gas prices keep talking about. Okay what about Tom. CDs in US treasuries in US government bonds. Our dear good opportunities in emerging markets is that worse investor should be looking in is that where you're looking for better bond investments. So you know it's funny is that we have a fund called alliance burned seeing high income fund their best. Both within EM emerging markets sponsored as well as high yield and we have one of the lowest allocations right now. TE EMs -- very specifically in him in general. And there's a real reason why. -- have really rallied along we've treasuries and so. Names like Brazil. Where it used to think of them as high income tax upon. Thirty year Brazil trades at four and a half percent. Now I'm not sure value but I don't wanna be lending Brazil money for thirty years that 45%. Great great it's it's it's worth more than that isn't that you it especially -- -- I had one more like 6% 7% on a thirty year bond to Brazil. Exactly but -- we are finding value in those funds is we're finding value in -- emerging markets corporate -- example is whole -- which is the home builder in Mexico. Which has better credits that then they KB homes but gives -- for -- -- And and that's where we're really looking to it is to add value to our portfolios. All right what about European debt and I know this is the is that nutty thing to ask about and David Greece is getting ready to default but. I I hear about hedge funds being formed in -- -- 3000000005000000010. Billion dollars. And they're getting ready to buy European debt is it to -- I don't wanna be on the wrong end of that trade meaning I don't wanna be the ones selling European debt. When they hedge funds are about to buy. Should individual investors be getting ready and start to think about buying European debt is a -- is it close to the bottom. So at I would say it's time to start thinking on part of that market figures to -- keep your -- -- In your pocket because it's still probably a little bit -- let me give you a great example of -- which is already defaulted. Are treated 22 cents on the dollar that'll give you 10% -- yield. And chances are you may not see that 10% because they made default again. A month -- -- from now. Still and still think that that there you know it's a little bit early. We are finding pockets of value great example a lot poorer which is the Portuguese utility which -- bbb type of corporate name. On you it gives you an 8% yield and that's real high yield type of game where they have real assets and probably investment grade characteristics. You know I have to ask you about interest rates because the -- I was with my nephew over the weekend and I told him to do two things -- said. Buy a house and get a long term fixed rate mortgage because I think housing prices are cheap and I think mortgage rates are artificially low was that. Accurate advice and -- or Mike given him bad advice in terms of mortgage rates. So I I think that that's probably fair I think mortgage rates are are low and the Fed wants them to be low. On your chances are they're not gonna rise meaningfully. In the next. Two years to because you know let's face it housing you know they may have bottomed but it's not a gonna skyrocket any time since. Called but having said that I completely agree that -- home prices are pretty affordable and especially at existing mortgage rates. -- -- the -- -- tying trying to tie you down on the -- trick question though do you think a year from now the mortgage rates will be higher than where they are today. I don't think if they're -- they're not going to be materially higher. Okay great well thank you very much for your time I sure appreciate it. That's -- she shot he's the head of global credit for all of Alliance Bernstein. Donating his time to the cause and hopefully he assisted you in making better investment decisions as it relates to your fixed income portfolio.