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"My operating premise, once again, is really
later, lower, longer," Peters told the Reuters Global Investment
Outlook Summit in New York. "If anything, any movement by the
Fed will not be in the middle half of the year, but later than
that."
He said the Fed will most likely wait until at least September
2015, and perhaps into 2016, before raising rates.
"We are in this slow-growth world," he said. "The U.S. looks
solid relative to everyone else, but the global construct is
slowing. That serves as a cap for growth here in the U.S. and
inflation is the same story. If anything, the bias is for
disinflation and deflation instead of inflation."
Against that backdrop, Peters expects the yield on 10-year U.S.
Treasury notes to range between 1.8 percent and 2.8 percent in
2015. He said this is also justified because the notes offer a
better risk-reward tradeoff than global government bonds,
including German bunds and Japanese government bonds.
Modest economic growth can also dampen the outlook for
higher-octane investments such as high-yield bonds. Peters said
Prudential has been reducing exposure there, especially in the
energy sector as oil prices have fallen.
"When the market seizes up or starts to trade poorly, you want
to be in a position where you can buy," he said. "That's what we
did with the high-yield market in October. ... Now with spreads
tightening, we're starting to take that risk down."
Fixed income, though, can be a buffer when equity prices are
volatile, and Peters said that despite "pockets of richness,"
the market is not overpriced.
"I haven't seen much change fundamentally to suggest that fixed
income, writ large, is overvalued," he said.
Peters sees good values in investment-grade securities, after
they "completely underperformed" in 2014, with a preference for
structured products such as high-quality collateralized
mortgage-backed securities and collateralized loan obligations.
"It actually has better liquidity characteristics than
investment-grade corporate bonds," he said. "We still feel like
there's a mispricing generally of structured product."
Follow Reuters Summits on Twitter @Reuters_Summits
(For more summit stories, see)
(Reporting by Jennifer Ablan and Jonathan Stempel; Editing by
James Dalgleish and Jonathan Oatis)
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