Bubble Worries in Bonds Divide Funds as Treasury Curve Inverts
Bubble Worries in Bonds Divide Funds as Treasury Curve Inverts
(Bloomberg) -- Bonds have never yielded less in Nick Maroutsos’ entire 20-year career -- but that’s not stopping the Janus Henderson fixed income chief from buying more. For hedge fund founder Damien Loh, they are getting pricey and his preference is instead for gold.
The debate on how low yields can go is hotting up as the relentless rally in global fixed-income markets shows no signs of slowing. Fund managers interviewed indicated the continued appeal of long-duration debt even as the 30-year Treasury yield dropped below 2% for the first time and the closely watched 10-year and 2-year curve inverted.
“Right now you continue to buy bonds,” Maroutsos, co-head of global fixed income at $360 billion asset manager Janus Henderson, told Bloomberg Television. “People are looking for any sort of positive yield.” He favors the U.S., Canada, Australia, New Zealand where he said “you get far more bang for your buck.”
A slew of disappointing economic data in China and Germany, and Wednesday’s key yield curve inversion -- often considered a harbinger of recession -- has sent investors rushing anew to haven assets this week. The world’s stockpile of negative-yielding bonds rose to a record $16 trillion on Wednesday.
The fears though may be misplaced, according to central bankers. The U.S. economic conditions are “quite good” with unemployment near a 50-year low, said Federal Reserve Bank of St. Louis President James Bullard. The Reserve Bank of Australia’s No. 2 official weighed in on the debate on Thursday questioning the value of using the Treasury yield curve inversion as a sign of recession.
“At the moment the U.S. economy is actually growing above trend so they’ve got a fair way to slow from here,” said RBA Deputy Governor Guy Debelle. Trade disputes are a key risk, though, he said.
American Allure
The allure of American and Australian bonds has seen AMP Capital Investors Ltd. recently increase exposure. Nader Naeimi, who runs the firm’s dynamic markets fund, is cognizant that valuations are looking lofty after the run up but says there’s no sign of a reason to back away.
“Bonds are expensive and crowded, but a catalyst for a reversal is not in place yet,” he said. “I continue to hold long duration,” he added. He expects the U.S. 10-year yield to drop below 1% by the end of this year. It was at 1.56% Thursday.
Still, not everyone is convinced the rally has further to run. Goldman Sachs expects the 10-year yield to return to 1.75% by year end.
Time for Caution
In Singapore, Loh, a former options trader at JPMorgan, prefers to err on the side of caution.
“Bonds are really expensive and I’m staying out of it,” said Loh, Singapore-based chief investment officer at macro hedge fund Ensemble Capital. “There are better trades in safe havens, including long gold given bond yields are at next to nothing.”
--With assistance from Guy Johnson.
To contact the reporters on this story: Ruth Carson in Singapore at rliew6@bloomberg.net;Adam Haigh in Sydney at ahaigh1@bloomberg.net
To contact the editors responsible for this story: Christopher Anstey at canstey@bloomberg.net, ;Tan Hwee Ann at hatan@bloomberg.net, Cormac Mullen
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