BlackRock Inc, the world’s biggest money manager, said investors should be wary of US Treasuries as the Federal Reserve moves toward raising interest rates.
“It’s time to rethink the role of US Treasuries in portfolios,” Richard Turnill, BlackRock’s London-based global chief investment strategist, wrote on the company’s Web site on Monday. “We are cautious on long-term US Treasuries.”
The Fed indicated last week it would raise interest rates by the end of the year, the report said.
Futures contracts suggest the central bank could move as soon as December.
The US$4.89 trillion fund manager recommends shorter-term corporate and municipal bonds and gold.
The US 10-year note yield rose two basis points, or 0.02 percentage point, to 1.60 percent as of 8:53am yesterday in London, according to Bloomberg Bond Trader Data.
The 1.5 percent security due in August 2026 fell US$1.56 per US$1,000 face amount.
The yield would increase to 1.72 percent by the end of the year and exceed 2 percent next year, according to Bloomberg survey of economists.
Treasuries due in a decade and longer have lost 1.6 percent this month through Monday, based on the Bloomberg World Bond Indexes. They have still returned about 15 percent this year following a first-half rally.
“Longer-maturity US government bonds still have a role to play — and should buffer portfolios in any flights to safety, but investors today are paying a lot for this diversification benefit,” Turnill wrote.
The US was scheduled to sell five-year notes yesterday. It plans to auction seven-year securities and two-year floating-rate debt today.
BlackRock also warned about US Treasuries earlier this month.
Rick Rieder, the New York-based global chief investment officer of fixed income, said on Sept. 16 on Bloomberg Television there is not a lot of value in 30-year bonds.
Treasury rates are not going to rise dramatically, he said on Thursday last week, also on Bloomberg Television.
The BlackRock Strategic Income Opportunities Portfolio has returned 2.4 percent this year, lagging behind about 90 percent of its peers, based on data compiled by Bloomberg.
The BlackRock Strategic Global Bond Fund returned 10 percent, beating 77 percent of its peers.
Daiwa SB Investments, which has about US$53.6 billion in assets, is more bullish.
Kei Katayama said the Fed’s statement following its meeting would support US Treasuries.
Near-term risks to the economic outlook are roughly balanced, the Federal Open Market Committee (FOMC) said.
Officials scaled back expectations for rate increases next year and over the longer run.
“I’m a bit positive after the FOMC meeting,” Katayama said. “I thought the FOMC is taking a more conservative approach.”
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