GO
Loading...

Deleveraging is a 'Pretty Volatile Process": KLS Exec

Wednesday, 31 Aug 2011 | 2:54 PM ET

The "total leverage system" has not come down over the last couple of years, Jeffrey Kronthal, co-managing partner and co-CIO of KLS Diversified Asset Management, told CNBC on Wednesday."

"There's a recognition here that this deleveraging process is a very long process," said Kronthal, whose hedge fund specializes in fixed income. "It's a pretty volatile process."

What has happened is private debt turned into public debt. "Household debt has come down," he said. "Credit card debt has come down. But I still think when you look at people's balance sheets, and you really look at household debt relative to [gross domestic product], we've increased 50 percent over the last 10 to 15 years and we've come back down 10 percent."

"We still have a long way to go," said Kronthal.

He went on to say the expectation of yields over 10 years versus inflation "have flattened out."

The 10-year Treasurybond "hit about 2.25 [percent of yield] last year, backed up to 3.60 [and] we're back down to 2.20," explained Kronthal.

The Great Deleverage
Discussing why the markets may be stuck until deleveraging plays out and where investors can find opportunities in fixed income, with Jeff Kronthal, KLS Diversified Asset Management.

However, he noted, because of investors' need for safety, there will be a lot of demand for Treasurys over time.

Lastly, right now "credit quality long-term is probably still there unless we go into a severe recession, which I don't see," concluded Kronthal. "So upper end of high yield, the structured finance market likes commercial real estate."

Follow Strategy Session on Twitter: @CNBCStrategy


Watch CNBC's "The Strategy Session" weekdays at Noon ET.