NEW YORK (Reuters) - Yields on 10-year Treasuries could slide further as excess global supply holds down consumer prices and investors see little reason to add risk, Daniel Alpert, a managing director at Westwood Capital LLC, said in an interview on Wednesday.
The yield on the 10-year note, now trading around 1.85 percent, could test the 1.55 percent level, Alpert said.
All it would take for yields to fall to that level, he said, “is a few very bad CPI (consumer price index) inflation prints.”
Excess global supply relative to aggregate global demand could keep downward pressure on inflation, with major implications for global monetary policy, Alpert said.
With crude prices collapsing by more than half since June, price pressures have been subdued or absent across much of the world, a worry for central banks scrambling to fight deflation.
In December, for example, U.S. consumer prices recorded their biggest drop in six years, even as the U.S. Federal Reserve has signaled hopes to raise its key interest rate in the coming months.
If prices drop abroad for a wide array of goods and services that the United States imports, that could affect U.S. inflation.
Several global central banks responded on Wednesday to restrained price pressures. The Bank of Japan cut its inflation forecast, though it also suggested that it was no rush to ease.
The Bank of Canada shocked markets by not only slashing inflation and growth forecasts but also cutting rates. And the ECB could decide on Thursday to launch a bond buying plan to boost growth.
Deflation, in turn, could make cash more attractive as an investment for a while, Alpert said.
Alternatively, investors could look outside the developed world.
“India’s a phenomenal bet,” Alpert said.
Should even some of Prime Minister Narendra Modi’s reform efforts succeed, and he builds infrastructure, India’s large non-urbanized population could help the country unlock its potential, he said.
Still, Alpert said the S&P 500 could find support around 1,840 or 1,810 in a correction from its current level above 2,000, as there are few other attractive alternative assets around the world at the moment, barring a major event, such as disintegration of the euro zone.
“There’s no place to put the cash if you take it out of the stock market,” he said.
Reporting by Luciana Lopez; Editing by Peter Galloway