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Bernanke may delay tapering past September: UBS

Sofia Pitt, Special to CNBC.com
Friday, 16 Aug 2013 | 2:28 PM ET
Markets posted to correct?
Friday, 16 Aug 2013 | 12:00 PM ET
Stocks are at their lowest levels in a month; the FMHR traders debate the sell-off. Paul Richards, UBS, discusses tapering and why a September delay is "fantastic" for stocks.

Federal Reserve Chairman Ben Bernanke may delay his plan to taper bond purchases past September, as investors expect, because of this week's surge in interest rates, according to UBS.

"If 10-year Treasuries are at 2.8, 2.9 percent in September, the chance of tapering will reduce to 50 percent at most," said Paul Richards, head of FX distribution at UBS. "I don't think that Bernanke is going to be held hostage to the bond market, and I'm a guy that's been calling tapering for three months."

The 10-year Treasury yield jumped almost to 2.9 percent this week after better than expected jobs data Thursday. A six-year low in jobless claims may signal an improving employment market.

(Read more: Fed's Bullard says no sign of asset bubble)

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"The market's basically put a 75 to an 80 percent chance on a tapering in September, and they're missing one thing," Richards said. "What they're missing is the [Federal Open Market Committee] minutes in July where Bernanke specifically cited tighter monetary conditions as being able to threaten economic recovery."

The Fed has been buying $85 billion in treasuries and mortgage-backed securities each month in an effort to reduce interest rates. This is all part of the central bank's quantitative easing, or QE3, plan. Stock and bond market investors expect the Fed chief to slow this process as early as September.

Richards said he would still buy the dollar versus the euro as the U.S. recovery will remain stronger than Europe's for the rest of the year.

—By Sofia Pitt, Special to CNBC.com

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