Guest post by Peter Tchir.
The Year End Yield Chase
Closed end fixed income funds continued their bounce, high yield ETF’s had inflows, and much of what we discussed last week came true.
The move the prior week was rational. We saw steep declines in closed end funds on a combination of big premiums, leveraged assets, and dividend tax confusion. This helped push all credit markets lower. Credit moved not just with the other “risk off” trades but with fear and confusion that retail in particular was having a mass exodus from fixed income.
That wasn’t true and isn’t likely to be true anytime soon.
I am the most bullish I have been. I think we will see continued strength in credit into year end at this point. I am making a key assumption here that the fiscal cliff will be dealt with in a way that benefits the markets. I expect a deal that has minimal impact in the next 6 months to a year. At the Ben Bernanke luncheon this week, it seemed clear to me that is what he is telling congress. So congress is being told not to raise taxes and not to cut spending in the near term but by the Chairman of the Federal Reserve. That seems to be a policy that congress can get on board with, as can kicking seems to be their specialty.