NEW YORK (Reuters) - The U.S. Federal Reserve will likely not raise benchmark interest rates in December, according to one of Wall Street’s most widely followed investors.
“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