Money managers' response to the Federal Reserve's decision to cut its monthly bond purchases to $75 billion in January from $85 billion is much more optimistic than it was when the topic first was broached.
In fact, as a result of the Fed's decision last week, some expect to see an accelerated interest in fixed-income strategies next year.
“We're pleased with the Fed's decision, having long argued that the last round of quantitative easing was too large and disrupted the proper functioning of financial markets without meaningfully helping the labor market,” said Rick Rieder, chief investment officer of fixed income for BlackRockInc., New York, which manages $640 billion in fixed-income assets. “This is a step in the right direction.”
One of the main reasons for the industry's moderate reaction to the Fed's Dec. 18 announcement that it will in January start slimming its bond-buying is that it has been long anticipated. Investors and money managers have been expecting it since the discussion about so-called “tapering” began last May.
Mr. Rieder for one doesn't think the Fed's decision will be a “big shock” for bonds, since there's still plenty of “easy money” in the global financial system. “We're looking for the 10-year Treasury to inch up to 3.25% or so by the middle of next year. So-called spread sectors, (such as) high yield, commercial mortgages and other asset-backed bonds, are all still better bets than Treasuries,” said Mr. Rieder.
The yield on the 10-year bond rose two basis points to 2.89% late on Friday from 2.87% on Wednesday after the Fed's announcement.
“This is something that we've all been waiting for,” said Dave Breazzano, president of DDJ Capital Management LLC, Waltham, Mass. “People knew it was coming. It was just a question of when.” DDJ manages $7 billion in high-yield, bank loan and special situations investments.