Sean Egan: Fiscal Cliff Dive Wouldn’t Hurt Treasurys

Friday, 28 Dec 2012 09:20 AM

By Dan Weil

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Even if the United States jumps off the fiscal cliff and sees its credit rating downgraded, Treasurys won’t lose their safe-haven status, says Sean Egan, founding principal of Egan-Jones Ratings.

"The assumption is that the U.S. has incredibly deep markets, and even if it's downgraded a notch or a couple notches, it's still the safest place to be of all the alternatives in the developed markets," he tells CNBC.

But Egan isn’t looking for a major rally in Treasurys. He sees crosscurrents, such as Japan seeking to push the yen down over the next six months and the European Central bank easing monetary policy.

Video:
Economist Predicts 'Unthinkable' for 2013

"I think you have a lot of things happening at once," he says. "I don't think the conclusion is that you can go into long-term Treasurys."

Indeed he thinks the 10-year Treasury yield, which was at 1.70 percent early Friday, will rise next year amid U.S. economic recovery.

Jeff Gundlach, CEO of DoubleLine Capital, also is bearish on Treasurys for next year. “I would not be surprised to see some [upward] pressure on Treasury rates,” he says, according to Barron’s.

“We have to ratchet down our expectations for fixed income next year. I’m hoping to get 6 percent returns, and that involves some active management.”

To be sure, Gundlach isn’t looking for rates to explode higher. “I think they can rise modestly,” he says.

Video: Economist Predicts 'Unthinkable' for 2013

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