Syrian Strife and Uneasy Markets Stoke Demand for Bonds; Can It Last?


It's a country the size of Kansas with a population about that of Texas, but today, it could be argued that Syria is the most important place on earth. From an investment standpoint, fear's late-summer cameo appearance has doused what little enthusiasm existed for stocks and lit a fire beneath oil, gold, and treasuries.

"If you look out to the longer term, we think rates are gradually going to head back down, so we see the (bond) market today as attractive," says Mark Kiesel, global head of corporate bond portfolio management group at PIMCO in the attached video.

This call to arms, if you will, follows what Kiesel calls an unprecedented three-month selloff in treasuries, in the face of an expected scale-back of asset purchases next month by the Fed. But even beyond that, he says, the case for caution can be made.

Related: No Fed Taper Until New Year Means New Highs: Fahmy

"The global economy is still quite weak, emerging markets are slowing, housing is beginning to soften a bit," he points out, noting that the market has already priced-in tapering.

"What is not priced in, is the Fed's forecast for next year, which they just called for last month, is for 3-to-3.5% real GDP. PIMCO sees a world closer to 2%."

Related: Related: No Fed Taper Until New Year Means New Highs: Fahmy

What that means, if they're right, is that actual rate increases - not tapering - are still years away. In fact, he doesn't see the Fed Funds rate moving until 2016.

His advice is to stay short, in terms of maturities, or to consider putting a portion of your proceeds into junk bonds.

"'We believe it's time to go up in quality within the high-yield market now," he says, touting the fact that he can currently "buy a lot of BB-rated securities, which are the highest tier of high-yield securities, (with yields) close to 6%."

He considers this "a safer way to play high yield," and suggests owning the debt of companies such as MarkWest Energy, and Wynn Resorts, which he says are enjoying improved credit quality.

More from Breakout:

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Syria Crisis Could Send Oil Toward ’08 Highs: Schoenberger

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