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CNBC's Ron Insana: Don't Be Tricked by 'False Hope of Fully Functioning Governments'

CNBC's Ron Insana: Don't Be Tricked by 'False Hope of Fully Functioning Governments'

(Dollar Photo Club)

By    |   Monday, 19 September 2016 12:47 PM


 

CNBC commentator Ron Insana warns that long-term interest rates have been rising because the bond market is totally misinterpreting global financial tea leaves.

“Can world governments engage in active fiscal stimulus, tax reform, regulatory reform and other measures that would alter the seemingly structural deficiencies in the world economy and get growth, slowing many countries despite near zero interest rates, back to historical potential,” he asked on CNBC.com. “I would not be willing to bet on it,” predicted Insana, the author of four books about Wall Street and an MSNBC contributor.

“It's the reason, in my opinion, that rates are rising,” he said, noting that long-term interest rates have been rising, most dramatically in Japan, and in other countries where rates have been negative for nearly a year. In the U.S., amid rising expectations of a rate hike from the Federal Reserve, 10-year Treasury yields climbed as high as 1.73 percent last week, the highest level since mid-June and near the general level where they remain today.

“But it appears to be based on the false hope of fully functioning governments, both at home and abroad. It certainly makes enormous sense for central bankers to pass the stimulus baton to federal governments,” he said. “If the baton is soon dropped, however, expect interest rates to drop right along with it,” he said.

“I would dearly love to see enlightened fiscal policy that enhances long-term growth prospects improves productivity and restores normality to the world's bond markets,” he said.

“It is not yet, however, a bet I'd be willing to make.”

Not only have doubts about the Fed’s resolve left traders convinced there’s little more than a 50-50 chance rates will rise at all in 2016 (policy makers began the year predicting four hikes).

They’ve also fueled a sense of complacency that has everyone from Jeffrey Gundlach to Bill Gross warning bonds are overvalued. But perhaps most important of all is that the perceived loss of credibility has left the Fed with no good choices. Either raise rates now and risk blindsiding investors, or hold off longer and reinforce the view it’s at the mercy of the markets.
 

“The fact is that the Fed is beholden to what market participants say the move is going to be,” Colin Robertson, who oversees $398 billion as the head of fixed income at Northern Trust Asset Management, told Bloomberg. “Some day, some time, they just have to shock the market and deal with the collateral damage.”

(Newsmax wire services contributed to this report).

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CNBC commentator Ron Insana warns that long-term interest rates have been rising because the bond market is totally misinterpreting global financial tea leaves.
ron insana, fed, bonds, government
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2016-47-19
Monday, 19 September 2016 12:47 PM
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