Tags: Deutsche | Bank | Jain | Yields

Deutsche Bank's Jain: Rising US Yields Good for Markets

Tuesday, 04 June 2013 05:46 PM

Rising bond yields spurred by speculation that the Federal Reserve may scale back purchases are good for markets, said Anshu Jain, co-chief executive officer of Deutsche Bank AG.

"It’s very healthy," Jain said in response to an investor question about U.S. monetary policy at a conference hosted by Deutsche Bank in New York Tuesday. "We’ve seen what happened in 2007 when you let pricing get to extremely lofty levels. Now, of course, they have to get it right and not get that pace wrong."

Treasurys posted the steepest monthly loss since 2009 in May amid speculation the Fed will pare its program of buying $85 billion of bonds a month to keep rates low. Frankfurt-based Deutsche Bank's economists predict purchases will end later this year, while some peers expect it in 2014, Jain said. Federal Reserve Bank of Kansas City President Esther George Tuesday urged a reduction of the bond buying, known as quantitative easing.

"Without any privileged knowledge, I think you can see exactly what they're doing -- they're jawboning the possibility of this intervention coming to an end," Jain said, referring to a practice of using speech instead of actions to produce market moves. "Term rates are now starting to absorb that information and reflect it in pricing - no bad thing."

The yield on 10-year Treasury notes climbed to 2.23 percent on May 29, the highest since April 2012, after reaching a 2013 low of 1.61 percent on May 1. The average yield for the past 10 years is 3.58 percent. The note yielded 2.14 percent in late New York dealings Tuesday, according to Bloomberg Bond Trader prices.

Less Pressure

Jain said he welcomes some of the recent market reaction because it's easing speculation in real assets and the "very extreme spread compression that we've seen in credit markets."

"Certainly when I look at the rate at which leveraged borrowers have been able to borrow, especially in this last leg of the credit contraction, it starts to concern me," he said.

Central banks took necessary measures to stimulate economic growth, even if they may have had negative consequences, Jain said.

"I endorse what the central banks have done; candidly they had no choice," Jain said. "Now that we are where we are, the medicine has worked, how do we withdraw?"

Central bank policies have increased demand for assets that Deutsche Bank's non-core operations unit is selling to help raise capital levels, Jain said. The fixed-income, currency and commodity-trading division hasn't reaped the same benefit because it doesn't hold a large inventory of assets that can be marked up, he said. Instead, the trading business would benefit more from a steeper yield curve and more interest-rate volatility, he said.

"I would much prefer, and Colin Fan and his team would much prefer, a steeper curve, higher volatility, bigger volumes," Jain said, referring to the executive who co-leads Deutsche Bank's investment banking unit, known as corporate banking and securities. "If we sat here Japan-like for the next five years, that's a more challenging environment."

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Rising bond yields spurred by speculation that the Federal Reserve may scale back purchases are good for markets, said Anshu Jain, co-chief executive officer of Deutsche Bank AG.
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2013-46-04
Tuesday, 04 June 2013 05:46 PM
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