A $361 Billion Fund Is Buying Treasuries on Bets Yields Peaking

(Bloomberg) -- M&G Investments is building up its war chest of U.S. Treasuries on wagers that yields in the world’s most liquid bonds are likely near their peak.

The London-based money manager now has 12 percent of its $26 billion Optimal Income Strategy portfolio in U.S. government debt, up from zero a year ago, investment director Pierre Chartres said. The fund holds mostly three to 10-year notes, he said.

“They’re a lot more attractive than they were in the past and they’re closer to fair value,” Chartres, whose firm oversees the equivalent of $361 billion, said at a briefing in Singapore. “And if markets do go south, then they’ll give you a very good hedge for the credit or the more risky assets that you have in the rest of your portfolio.”

A haven rally in 10-year Treasuries this month has seen yields drop to around 2.85 percent Tuesday, having surged to as high as 3.26 percent in October. This year marked the first time the benchmark breached the 3 percent mark since 2014 as the Federal Reserve raised interest rates. Yields have climbed amid a resurgent dollar and signs of inflation picking up in the world’s biggest economy.

M&G joins the likes of AMP Capital Investors Ltd. and Kamet Capital Partners Pte in buying U.S. government debt as global money managers fret over trade tensions and the risk of an American recession as early as next year. A rise in yields on two-year paper sparked an inverted spread between some shorter and longer-term Treasuries early this month. That is often seen by markets as a potential recession indicator.

The increase in yields has been very disruptive, which has led a lot of market participants to urge the Fed to take a pause, Chartres said. These headwinds will be less important in 2019 as most of the adjustments have been priced into markets, he said.

To contact the reporters on this story: Ruth Carson in Singapore at rliew6@bloomberg.net;Patricia Lui in Singapore at plui4@bloomberg.net

To contact the editors responsible for this story: Tan Hwee Ann at hatan@bloomberg.net, Cormac Mullen, Liau Y-Sing

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