Why the Fed won’t taper until 2014: Bond guru
It's the market's most important question. And this expert says that traders are getting the answer all wrong.
Now that the Federal Reserve has shocked the market by maintaining the pace of its asset purchases, the market desperately wants to know when the Fed will, in fact, begin to taper its quantitative easing program.
Some speculate that the Fed will announce tapering in its December statement, while others contend that tapering could come as soon as October. But David Robin, co-head of financial futures and options at Newedge, makes a strong case that a tapering announcement is still further away than many think.
"I don't think they start tapering until the early part of 2014," Robin told CNBC on Tuesday's "Futures Now."
For Robin, October is out of the question. First of all, if economic conditions don't yet support a reduction of quantitative easing, then they still won't support tapering in a few weeks.
"Even if you get a strong payroll number in the early part of October, you're still going to have an above-7-percent [unemployment] rate, you're still going to have smoothed-out nonfarm payrolls growth below 200,000," Robin said. "That is not the recipe for removing tapering."
Plus, there is a logistical problem with tapering in October. As Robin points out, there is no press conference scheduled to follow the Fed's Oct. 30 statement. That means that Fed Chairman Ben Bernanke wouldn't be given a chance to ease the market's concerns following any tapering announcement.
But why wouldn't the Fed announce tapering in December?
Well, President Barack Obama is seeking a successor for Bernanke, and now that Larry Summers has taken himself out of the running, a Janet Yellen appointment appears likely. Robin believes that Yellen will indeed be the next Fed chair, and that's actually why he thinks the Fed won't taper in December.
"Odds are that it's Janet Yellen, odds are that it's Janet Yellen's first meeting," Robin said. "Unless the data is substantially stronger than it is now, I'm hard-pressed to see her first decision at the first meeting to be starting to remove stimulus when she's even on the more dovish side of Bernanke."
Because he believes that both October and December are out, Robin says he's "hard-presed to see any sort of tapering action until 2014."
(Read more: Some traders got 'no taper' decision news earlier)
That could mean Treasury yields have some more room to the downside.
On Tuesday, the 10-year yield fell to 2.65 percent. But Robin says it will close the year "below 2.5, probably close to 2.35 in a continuation of a nontapering, lower-for-longer environment."