Treasury yields (^TNX ^TYX, ^FVX) have begun to edge lower as the market awaits the policy decision from June's Federal Open Market Committee.

Franklin Income Investors CIO Ed Perks joins Morning Brief to give insight into Treasury yields, the Fed meeting, and what investors should know about the potential implications on their portfolios.

"We still think there's a fair amount of just normalization in rates that can occur. So the Fed is going to stay put tomorrow. It's going to be a pretty boring meeting actually. I think it'll be interesting to see the economic projections that come out and how they change, if at all, from the March projections, but we really, as we get into 2025, we still have conviction the Fed is going to continue to see disinflation toward their target and that that will allow that normalization more towards the neutral rate," Perks tells Yahoo Finance.

For more expert insight and the latest market action, click here to watch this full episode of Morning Brief.

This post was written by Nicholas Jacobino

Video Transcript

And treasury yields edging lower with investors looking to two crucial test for the markets.

This week, the consumer price index for May will be released tomorrow morning, followed by the Federal Reserve's policy decision in the afternoon.

So what's the best way to position your portfolio ahead of these two big events?

Let's bring in Kirk Franklin Templeton, Income Advisors, Chief Investment Officer and thank you so much for, for being here.

I want to start on fixed income.

You're overweight on fixed income, so bullish on bonds.

Why do you view that as an attractive asset class at this point?

Especially ahead of that CP I print tomorrow and the fed decision?

Yeah.

Hi, thanks.

It's great to be with you.

Um I think first, you know, as we look at fixed income markets, it's just such a different landscape today than it's been, you know, for really much of the last decade, if not even a little bit longer.

So um just the outright attractiveness of yields for anybody seeking income.

Certainly, that's a game changer from, from what we've experienced now, you know, I think as we look uh year to date more recently, uh as you just said we're kind of around 4.45%.

That is kind of towards the upper end of, of where we've been here a year to date.

Really the last year, uh, briefly just ticked up a little bit higher than that.

Um, you know, so that it actually has been a bit of a headwind for bonds, but we really see that dynamic changing as we get through, uh, in, into the back of the year and into 2025.

The Fed uh cutting, even if just modestly, we see the headwind debating and, and possibly even turning into a tailwind for uh for bonds.

And so with regard to that, how aggressive of a cutting cycle are you anticipating as you look into and through the bond market?

Yeah, you know, we still think there's a fair amount of, of just normalization and, and, and rates that can occur.

So, you know, the FED I think is, is gonna stay put tomorrow.

It's gonna be a pretty boring meeting.

Actually, I think it will be interesting to see the economic projections that come out and, and how they change if at all from the March projections.

Um you know, but we really, as we get into 2020 five, we still have conviction the Fed is gonna get gonna continue to see disinflation towards their target and that, that will allow that normalization more towards the neutral rate.

And I know we can debate whether that's uh three or 3.5.

But that's a long ways from, from where we sit today.

So right now, not a lot priced in for 2024.

But we think that accelerates as we get into the back end of the year and the expectations for the first half of 25.

You mentioned those economic projections.

Part of that is the Federal Reserve's dot plot, which maps out where fed officials think interest rates are going to be heading in the future.

Do you expect more volatility in those dots?

And there's also that overhanging question of should markets put so much weight in the dots considering that it is just a forecast?

Yeah, you know, I i it's great to look at on the chart but uh you know, ultimately, we try to throw out the uh the highs and the lows and see a little bit more where uh you know, where the broader consensus is on the FO MC.

And I think that's a bit more, bit more telling we don't really expect a huge change.

Uh The data was, you know, the economic data earlier this year into their last meeting was a bit, we've seen a little bit more uh balance to arguably even a little bit softer uh broad economic data, the, the, the past uh month, month and a half or so and that we had a good non farm payrolls.

But uh there's been other stuff in the labor market that shows a little bit more balance as well.

Certainly, Ed, while we have you here, I mean, when we're thinking about where some broadening could take place in this market, where does it seem like there's a ripe opportunity for investors?

Yeah, we think it's, you know, it's very much a market of, of haves and have nots, we know the haves have been the A I leaders.

It's a very narrow market.

I think uh we saw something earlier today about the top 10 waiting more than three quarters of the total return of the S and P 500.

It's, it's not quite the magnificent seven anymore, but uh it's maybe a little bit more of the one and only if we're talking about NVIDIA and its contribution to the S and P returns.

When we look at kind of the average company, there hasn't been a lot of, of performance.

Um ar have got a little bit more attractive for the average stock.

Uh certainly of this past year, the probability of a recession has come significantly down and I think that improves the outlook.

So, you know, we are looking at that kind of broader cohort of, of companies that are not at 52 week high, they're um significantly often a lot of really quality companies that we've found for our income strategies.

Uh So these are dividend payers that have um you know, as we look, something more in that 16 to 18 times, uh, earnings expectations.

So pretty, pretty reasonable.

So, what, uh, companies or sectors that you're talking about, would you be putting money to work right now?

Yeah, that's, I think another really interesting part is that it's been kind of across sectors.

So, um, you know, it, a name like air products, um, earlier this year, um, you know, really kind of disappointed and we're kind of seeing this overreaction to, to companies, Coca Cola is another company that, that came down pretty meaningfully even within technology.

If we go back earlier this year, you know, when Google first launched their A I initiatives, you know, it kind of fell flat a bit, the stock came down, it's, it's now kind of recovered and I think there's a little bit more confidence that they'll, they'll write that ship.

So all of these have kind of created opportunities um within the market pretty broad range of companies.

One right now that I think looks interesting is, is Home Depot where, you know, you're well off of the 52 week high.

And with this broader backdrop and the expectation that, you know, into year end into next year rates will be coming down that could be supportive of the housing market.

And that's a stock that we think uh investors should maybe take a look at here at Perks Franklin Templeton, Income Advisor, Chief Investment Officer.

Great to have you on the show.

Thanks for kicking off the session with us.