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Tags: Levkovich | Lekas | bond | yields

Levkovich, Lekas Split Over Meaning of Decline in Bond Yields

By    |   Wednesday, 21 May 2014 10:07 AM EDT

Treasury bond yields have slipped in recent days amid concerns about global economic growth, with the 10-year Treasury yield dropping to a 6 ½-month low of 2.47 percent last week.

Citigroup Chief Equity Strategist Tobias Levkovich sees the move as a tempest in a teapot, but top-performing mutual fund manager John Lekas of Leader Capital begs to differ.

As for Levkovich, there's no need for investors to be alarmed, he told Yahoo.

Editor’s Note:
5 Shocking Reasons the Dow Will Hit 60,000

"We think [the reason for falling yields is] pretty technical," Levkovich noted. "Look at jobs, auto sales, planned capital expenditures. None of that is indicative of something ominous in the economic data."

Non-farm payrolls rose 288,000 in April, the biggest increase in two years. And U.S. auto sales rose 8 percent in April from a year earlier, to 1.39 million cars and light trucks, according to Autodata Corp.

Yields have dropped as banks and other institutions covered their short Treasury positions, Levkovich explained. "People have been reading a little too much into it."

But Lekas isn't so relaxed. He's particularly worried about the decline in the 30-year Treasury yield, which stood at 3.41 percent early Thursday, down from 3.96 percent Dec. 31.

"You need to watch the 30-year over the next 90 days," he told CNBC. "It's a bellwether for the market, and numbers suggest economic trouble."

Lekas believes the 10-year and 30-year yields will actually meet at the same level. "Our view is that the Treasury curve flattens here, meaning that the 10-year goes to 2.75 percent and the 30-year goes to 2.75 percent."

That dynamic will result from lower expectations for economic growth and inflation, Lekas argued. GDP grew 0.1 percent in the first quarter and consumer prices rose 0.3 percent in April.

So why will inflation and growth forecasts fall?

"Our credit debts are at all-time highs — $3.14 trillion. We're maxed out at 2007 levels on margin debt. And at the same time, you've got household median income that's gone from $56,000 to $51,000," Lekas said.

"So I think that the consumer is kind of out of play here, and I think ultimately, we've had our recovery."

Some investors say Treasurys have room for further gains. "With growth low, the low interest-rate environment continues," Paul Montaquila, the fixed-income investment officer at Bank of the West, told Bloomberg.

"Yield-hungry investors are frustrated, but this is a Fed-driven market, and when the Fed pushes out their timeline for raising rates, the market has to do so, too."

Andrew Wilkinson, chief market analyst at Interactive Brokers, told the Financial Times, "There is no reason that [10-year Treasury] yields cannot head back toward 2.25 percent as a result of tame inflation and the fact that investors are too anxious over the likely timetable and extent of tightening by the [Fed]."

Editor’s Note: 5 Shocking Reasons the Dow Will Hit 60,000

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InvestingAnalysis
Treasury bond yields have slipped in recent days amid concerns about global economic growth, with the 10-year Treasury yield dropping to a 6 ½-month low of 2.47 percent last week.
Levkovich, Lekas, bond, yields
485
2014-07-21
Wednesday, 21 May 2014 10:07 AM
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