Titanium Says Sell Government Bonds on Default Risk

Titanium Capital Ltd. Chief Executive Officer Philip Manduca
Titanium Capital Ltd. Chief Executive Officer Philip Manduca gestures during a Bloomberg Television interview in London. Photographer: Jason Alden/Bloomberg

Sept. 3 (Bloomberg) -- Investors should sell government bonds such as Treasuries because yields will rise in the next three years as the market demands higher compensation for the risks of default and inflation, Titanium Capital Ltd. says.

“You’ve got to be bearish on government debt,” Philip Manduca, chief executive at Titanium in London, said in an interview on Bloomberg Television’s “City Central” with Francine Lacqua and Guy Johnson. “Whichever way you crack it, either numbers don’t add up and you get government busts and downgrades, or you get a situation of debasement and potential inflation down the road.”

The global economic slowdown and the likelihood of a slide in stocks also threatens gold and high-grade government bonds because some investors may have to sell these assets to raise funds, he said.

“You’ve got to get an equity downleg as the weak economic growth story continues to exacerbate,” Manduca said. “In a downleg in equities, all other markets get washed out as people search for liquidity and margin call payments.”

An index of government bonds around the world has returned 14 percent over the three years through Aug. 31, according to indexes compiled by Bank of America Merrill Lynch. The MSCI All-Country Index of stocks handed investors a gain of 20 percent in the same period.

To contact the reporter on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net

To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net