when the Fed decided its next move was
to do nothing that left investors with a
problem they've had for about eight
years how to get income in a dirt
low-income world I'm jacket our editor
of barrons.com there's here with
Priscilla Hancock who is the global
fixed income strategist at JP Morgan so
let's start off with your kind of
big-picture view of where the feds
non-move leaves us in looking at fixed
income well it's a good question I think
it's a lot of scratching of the heads if
you think about the reason the Fed would
typically tighten its because growth and
or inflation are getting out of control
in the united states clearly we don't
have even those situations what they do
have now is a situation where they're
trying to figure out when they can
actually just remove the extraordinary
accommodation that they've been putting
in and the u.s. numbers alone would
suggest that we should do that what they
told us last week was well the u.s.
numbers may look like they're okay but
we're looking at the fact that we've had
a strengthening dollar we have weak
commodity prices and there's a slowdown
happening in the emerging markets and
we're not quite sure how dramatic that
slowdown is and because we're concerned
about that we're going to be cautious
and if you look back in history there
have been times when everything looked
okay here but there were global problems
that did reverberate back to this
country that's exactly right if you look
at the late 90s for instance you had a
similar situation and the Fed tighten in
the face of that in those times the big
emerging market partner was Mexico put
too much pressure on them you know a
strong dollar and higher rates here
increases the cost of borrowing for
merging markets so it created a crisis
and I think the feds concerned about
that they've looked around the world
since the crisis we've had 12 central
banks that have tightened all 12 have
since East so you really almost can't be
too cautious here so into this world
where should investors be putting their
money well if you think about that that
probably means that there's an
opportunity for duration buying longer
bonds because long-term rates are going
to stay low and they possibly will stay
wrote even once the Fed raises rates but
I think you have to be looking at some
of the risk sectors today and you
recognize that in the United States the
economy's doing pretty well so corporate
credit has a very attractive top-line
defaults are very low particularly
I yield sector and you're getting paid a
pretty attractive coupon there in fact
rates have spreads have increased 175
basis points since a year ago you can
get over five percent spread in the US
high-yield market ignoring energy and
metals and mining and when you say
spread you're referring to the distance
between what that bond is paying and an
equivalent Treasury an equivalent
Treasury bond which is about a four to
four and a half year Treasury bond
that's about the average duration of the
high-yield market but you're making a
distinction between high yield and then
just standard corporate credit which you
say is exposed to some other things that
might be a little dangerous well that's
exactly right i mean you're seeing
corporate credit strength across the
board but when you look at the
investment grade sectors though those
credits that are rated trip will be or
higher many US markets have global
exposure think of a proctor and gamble
for instance and i'm not using them only
for illustrative purposes but if you
think whether they have a lot of global
demand and the bottom line is if the
global markets are slowing that could
put some pressure on them the other
thing about the investment grade sector
we're seeing is that you know money is
cheap and with cheap money the question
is do they start borrowing too much do
they increase their leverage does it get
them into trouble not in the next three
to six months but over the longer term
one more area of interest particularly
to people with higher incomes in taxable
accounts municipal bonds and you think
there is some value there yes they're
mean they're cheap to taxable bonds and
what I mean by that is you can get rates
in some parts of the curve that are the
same as tax rates and it's textfree so
if you're in a higher tax bracket
municipal zar very attractive and the
other thing about municipal is is that
when rates do move up if they move up
they typically outperform in other words
they don't lose as much value as
comparable taxable bonds couple sectors
you have to be careful of in the
municipal market higher education is one
of them that probably surprises people
if you think about not the harbor's of
the world do you think about the changes
that are happening in the educational
system a lot of people going to
Community College that's going to put
pressure on sort of that middle and
lower tier of small liberal arts
colleges they just don't have the number
of people that can pay those high
tuition so we're cautious about that
sector great insights thanks for much
priscilla my pleasure thank you