Michael Hasenstab Kept Bet Against Treasuries as They Surged
(Bloomberg) -- Franklin Templeton’s short bond position in its flagship $33 billion Global Bond Fund deepened last quarter, even as Treasuries rallied and the Federal Reserve signaled an interest-rate cut at the end of this month.
Average duration in the fund, a measure of sensitivity to shifts in rates, dropped to minus 2.82 years as of the end of June, filings published on Tuesday show. Duration in the fund, which is managed by Templeton bond chief Michael Hasenstab, has fallen every quarter for the past two years.
The position puts Templeton at odds with most of the market, where easier monetary policy is being priced in as a foregone conclusion. Hasenstab has consistently argued that the economic data point to a steady rise in bond yields, and says it’s only a matter of time before that scenario plays out.
While duration across sovereign debt markets approaches all-time highs, the level in the fund has dropped from minus 2.21 years at the end of the first quarter and minus 1.14 years 12 months ago. Franklin Templeton has often done this by buying interest-rate swaps against Treasuries, though duration can also fall as the value of those derivatives shifts with the market.
Templeton’s Global Bond Fund has underperformed more than 80% of peers this year, even though it returned 4.3%, according to Bloomberg data. Total net assets in the fund have dropped by $3.3 billion since June 2018.
In comments made to Bloomberg News in February, Hasenstab forecast that the Fed would keep raising interest rates this year as U.S. labor markets remain “exceptionally strong” while wages and inflationary pressures continue to rise.
In October, Hasenstab said 10-year yields could “easily get above 4%.” On Tuesday they were trading around 2.1%.
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