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Inflation-Fighting Fed Is Good For Bonds

Wednesday, 28 Mar 2007 | 2:15 PM ET

Kevin Giddis, managing director of fixed income capital markets for Morgan Keegan, told CNBC’s “Power Lunch” that the Federal Reserve’s concentration on inflation is good news for bond investors.

“I think that over the next quarter, since the Fed has declared inflation Public Enemy No. 1, and they’re going to focus on that, it’s going to affect the long end of the market,” Giddis said. “Being up on the front end of the curve is a good bet, especially if you looked at today’s two-year results -- good interest, and it looks like investors are seeing the same things. You’re getting most of the yield without much of the risk.”

Q2 Fixed Income Outlook
Bonds are higher following a weaker-than-expected durable goods report, with William Larkin, Cabot Money Management fixed income portfolio manager; Kevin Giddis, Managing Director, Morgan Keegan fixed income capital markets and CNBC's Bill Griffeth

Giddis said he didn’t expect the Fed to cut interest rates in the next three months.

William Larkin, fixed income portfolio manager for Cabot Money Management, said investors should diversify their holdings and suggested looking at unhedged global fixed income and municipal bonds.

“Cash is not a punishment today because the yields are higher for short-term investments,” Larkin said. “I think patience pays. You have to look for entry points.”

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