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"I
think their window has closed on them," said Greg Peters, who
helps manage more than $550 billion in assets as senior
portfolio manager at Prudential Fixed Income, a unit of
Prudential Investment Management.
"If they aren't going to do anything, they should stop
threatening the market that they are going to move. It is adding
confusion," he said in an interview with Reuters.
Most economists expect the Fed to raise rates for the first time
in nearly a decade before the end of this year, but fresh signs
of a weakening U.S. and global economy have started to sow
doubts.
New York Federal Reserve president William Dudley said on
Thursday recent data suggest the U.S. economy is slowing, as
inventories, dollar appreciation and sluggish global growth hold
the U.S. economy back.
High-yield junk bonds "look interesting," said Peters, given
widening spreads against low interest rates and a slow-moving
Fed. The yield gap between junk debt and Treasuries is now 6.31
percentage points, compared with about five points at the start
of this year, according to the BofA Merrill Lynch High Yield
index.
"The carry is attractive," Peters said. "I think high-yield
outperforms equities this year."
Peters, a former Morgan Stanley chief global asset strategist
who sounded an early alarm eight years ago about the impending
financial crisis, said he believes Treasury yields will move
lower. The yield on the benchmark 10-year Treasury note traded
around 2.02 percent on Thursday, after dropping below 2 percent
on Wednesday.
"The U.S. central bank is capping yields," Peters said.
Peters warned in November 2007 that there was a greater than 50
percent chance that mortgage losses would cause a systemic shock
that would bring the financial system to a "grinding halt."
(Reporting By Jennifer Ablan; Editing by David Gregorio and Bill
Rigby)
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