Get Back Into Bonds, Inflation Not Coming, Unrepentant Bull Says

(Bloomberg) -- For some, U.S. 10-year yields piercing 3 percent is just the latest evidence of the end of the decades-long bull run in bonds. Others say it’s a great re-entry point, because fears about a break-out in inflation are overblown.

One unrepentant bull is Andy Seaman, chief investment officer at London-based Stratton Street Capital LLP, which says it manages about $1.5 billion. Much as Japan’s experience has shown how demographic trends can contribute to weak price pressures, Seaman sees low fertility rates and expanding ranks of the elderly across the world putting a lid on inflation.

That all means investors should buy duration -- that is, longer-dated bonds, Seaman argued in an interview while visiting Hong Kong earlier this month.

“There are a huge number of countries that going to have smaller populations, so it seems unbelievable in my mind that anyone thinks inflation is around the corner," Seaman said. "What do you think is going to happen to interest rates, inflation and growth -- it’s going to fall.”

Get Back Into Bonds, Inflation Not Coming, Unrepentant Bull Says

Among the securities he’s advising clients to buy are longer-dated, high-grade bonds such as Qatar’s 2042 notes and Abu Dhabi Crude Oil Pipeline LLC’s 2047 bonds, both of which were yielding around 5 percent on Tuesday in Hong Kong. Seaman has also championed Chinese securities, with his Renminbi Bond Fund one of the top performers among its peers, returning 17.7 percent last year, according to data compiled by Bloomberg.

While inflation rates have been ticking higher from the U.S. to Japan in recent months, Seaman doesn’t see a sea-change.

“Investors would be much better off securing your income for the rest of your life than you are gambling that the rates will be higher in the future," he said. "Rates have been going down for the past 30 years.”

©2018 Bloomberg L.P.