Fixed-income securities are poised to deliver losses “for the next couple of years,” according to BlackRock Inc., the world’s biggest money manager.
“Overall returns of the market will continue to be negative as monetary policy shifts,” Scott Thiel, deputy chief investment officer for fundamental fixed income, said at a media briefing in London. “The direction of interest rates will be higher over the next couple of years but the reality is that that’s not in every single asset class, and not in every single sector, and in particular, not in every single global market.”
U.S. Treasuries, the benchmark for everything from mortgages to corporate bonds, lost 2.5 percent this year through yesterday, according to Bloomberg World Bond Indexes, amid speculation the Federal Reserve is moving toward ending its asset-purchase program. The Fed last week unexpectedly refrained from trimming its monthly stimulus.
The Treasury 10-year yield climbed to 3.01 percent on Sept. 6, the highest level since July 2011, from 1.76 percent at the end of last year. The rate was little changed today at 2.64 percent at 10:52 a.m. in New York time, according to Bloomberg Bond Trader prices.
“I still think we can get some backup in Treasury yields,” as expectations for monetary policy tightening “have clearly moved back” following the Fed’s meeting, Thiel said.
He said the Fed’s decision led him to lower his year-end forecast for the benchmark Treasury yield to below 3 percent, from an earlier estimate of 3.25 percent.
The unpredictability of central banks “actually creates opportunities,” Thiel said. “If you believe that divergence offers opportunity, that volatility offers opportunity, then I think it’s an incredibly interesting time to be a fixed-income investor.”
BlackRock is a “huge fan of the peripheral bond markets,” Thiel said, referring to the sovereign debt of Europe’s high debt and deficit nations. The company is “overweight” Portuguese, Irish and Slovenian government bonds, meaning it has increased its holdings relative to the benchmark it uses to gauge performance.
Portuguese government bonds returned 1.9 percent this year through yesterday, according to the Bloomberg World Bond Indexes. Irish bonds rose 7.7 percent, while Slovenian securities lost 0.5 percent, the data shows.