JPMorgan Chase & Co. (JPM)’s $1.5 trillion asset management unit is buying emerging-market and convertible bonds as it seeks higher-yielding securities with the Federal Reserve maintaining its stimulus effort.
“All asset prices are going to be underwritten by central banks for the foreseeable future,” Robert Michele, JPMorgan Asset Management’s chief investment officer of fixed income and currencies, said today on Bloomberg Television’s “Market Makers” with Erik Schatzker and Stephanie Ruhle. “There are many parts of the bond market that look attractive.”
Michele said the firm is buying “equity-like” fixed-income securities, including local emerging-market debt, bank capital contingent notes and convertible bonds.
Investors are bolstered by the Fed’s decision yesterday to maintain its $85 billion of monthly Treasury and mortgage-debt purchases, surprising economists who expected the central bank to start slowing the stimulus program. The greatest proportion of fixed-income buyers are more “overweight” investment-grade corporate bonds since February 2011, according to a September survey by JPMorgan strategists led by Eric Beinstein.
The yield on the benchmark 10-year government note plunged 16 basis points, or 0.16 percentage point, to 2.69 percent yesterday, according to Bloomberg Bond Trader prices, the biggest drop since Oct. 31, 2011.
Corporate bonds in the U.S. are returning 0.4 percent this month, paring a 4.3 percent loss in the previous four months as concern mounted that the Fed would start slowing its unprecedented stimulus effort. U.S. policy makers said yesterday they want more evidence of an economic recovery before reducing its quantitative-easing program.
“Investors had become very defensive over the summer and raised a lot of cash,” Michele said. “You start to sense that the market is oversold.”
Corporate bonds from developing nations are returning 1.3 percent this month, the biggest gain since October, according to the Bank of America Merrill Lynch Emerging Markets Corporate Plus Index, as confidence increases that easy monetary policies will keep supporting riskier debt markets. A Bank of America Merrill Lynch index of convertible notes is returning 4.5 percent this month, the most since January 2012.
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