BlackRock Likes Treasuries Ahead of Auctions; Gundlach Says Wait

France Said to Be Selling 20-Year, 50-Year Bonds
  • BlackRock prefers long-term Treasuries versus global peers
  • Gundlach says U.S. yields may rise 10-15 basis points

BlackRock Inc. is bullish on Treasuries, while DoubleLine Capital LP’s Jeffrey Gundlach says investors should hold off.

“We prefer the longer end” of the maturity range, said Jeffrey Rosenberg, the New York-based chief investment strategist for fixed income at BlackRock. “You get much, much higher yields” than in other markets, he said Tuesday on Bloomberg Television. BlackRock is the world’s largest money manager with $4.6 trillion in assets.

Jeffrey Gundlach
Jeffrey Gundlach
Photographer: Andrew Harrer/Bloomberg

Gundlach, the chief investment officer of Los Angeles-based DoubleLine, said yields may rise 10 basis points to 15 basis points, in a webcast Tuesday. It’s better to wait to buy, said Gundlach, who helps oversee more than $84 billion.

The two firms differ as Federal Reserve officials debate whether the American and global economies are strong enough to justify raising interest rates this year. The U.S. will get an indication of investor demand for its longer-term debt when it sells $20 billion of 10-year notes Wednesday and $12 billion of 30-year bonds Thursday. It auctioned $24 billion of three-year securities Tuesday.

Treasuries were little changed Wednesday, with the benchmark 10-year note yield at 1.78 percent as of 8:18 a.m. in London, according to Bloomberg Bond Trader data. The price of the 1.625 percent security due in February 2026 was 98 19/32.

BlackRock’s Views

BlackRock’s Richard Turnill, the global chief investment strategist, hasn’t been as bullish as Rosenberg in his weekly reports. Investors should have an “underweight” position in Treasuries and U.S. inflation is poised to pick up, Turnill wrote in separate comments in March.

The BlackRock Investment Grade Bond Portfolio has returned 0.8 percent in the past year, lagging behind more than half of its peers, according to data compiled by Bloomberg.

The DoubleLine Core Fixed Income Fund advanced 1.3 percent in the period, beating 69 percent of its competitors, the data show.

At the last 10-year sale in March, investors bid for 2.49 times the amount of debt available. The so-called bid-to-cover ratio was the lowest since August for the monthly auctions.

The benchmark U.S. yield compares to 0.15 percent in Germany and minus 0.085 percent in Japan.

William Dudley, the president of the New York Fed, and other U.S. central bankers have been warning they will take a gradual approach to raising interest rates because of uncertainty over the U.S. and global economic outlook. 

The comments have spurred speculation the Fed wants U.S. inflation and growth to pick up before policy makers raise rates. Bonds stand to benefit now if central bankers delay the increases, though fixed-income securities may fall later if inflation picks up, clouding the outlook for the market.

‘Very Debatable’

“It’s very debatable at the moment,” said Roger Bridges, the chief global strategist for interest rates and currencies at Nikko Asset Management Co.’s Australian unit, which oversees $15.2 billion. “Are they looking globally or will they start looking at what’s happening in the U.S and possible inflation? It’s funny how the bond market doesn’t seem to be worried about that.”

The difference between yields on 10-year notes and same-maturity Treasury Inflation Protected Securities, a gauge of trader expectations for consumer prices over the life of the debt, was 1.57 percentage points. The figure has jumped from this year’s low of 1.12 in February. It’s still less than the central bank’s 2 percent inflation target.

Producer prices and retail sales probably rose in March from February, according to Bloomberg surveys of economists conducted before the reports Wednesday. The consumer-price data Thursday will also show an increase, based on the responses.

A separate survey of economists projects the U.S. benchmark 10-year yield will climb to 2.24 percent by Dec. 31, with the most recent forecasts given the heaviest weightings.

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