BlackRock Bullish as MUFJ Doubts Forecasts of Yield Jump

Strategists predict Australian bonds will fall in 2013 for the first time in four years. BlackRock Inc. and Mitsubishi UFJ Asset Management Co. disagree.

Ten-year yields will rise to 3.8 percent from 3.20 percent today, based on a Bloomberg survey of 19 banks and securities companies conducted April 11 to April 16. The increase would deliver a 2 percent loss, as yields and prices move in the opposite direction, data compiled by Bloomberg show.

“We favor Aussie bonds over those of other core developed markets,” said Stephen Miller, a Sydney-based investor for BlackRock, the world’s biggest money manager overseeing $3.9 trillion. “We don’t think the economy is doing as well as perhaps the consensus out there, and I certainly don’t think that the Reserve Bank has finished the process of cutting interest rates.”

A global slump in commodities and the Australian jobless rate’s climb to a three-year high is prompting BlackRock, Mitsubishi UFJ and BT Investment Management Ltd. to suggest the Reserve Bank of Australia will resume cutting interest rates after pausing since December. The nation’s government debt market returned 46 percent since the end of 2009 in U.S. dollar terms, the best of any developed market outside of New Zealand, Bank of America Merrill Lynch data show.

Ten-year yields will drop to 3 percent by year-end, narrowing the gap to U.S. rates to about one percentage point from 1.5 now, Miller said. That would deliver a 5.3 percent annual gain, Bloomberg data show.

If strategists’ forecasts are correct, holders will lose 0.4 percent in 2013 after interest payments.

U.S. 10-year yields will climb to 2.25 percent from 1.70 percent now, based on responses from economists. An investor who bought today would lose 3.2 percent, Bloomberg data show.

China Slowing

The outlook for Australia’s economy took a blow this week when China, the biggest customer for the South Pacific nation’s commodity exports, reported April 15 that gross domestic product grew 7.7 percent in the first quarter from a year earlier, slowing from a 7.9 percent pace in the fourth quarter.

Gold, Australia’s third-biggest export, tumbled this week to the lowest level since January 2011. The Standard & Poor’s GSCI Index of commodities has dropped 12 percent from this year’s high set in February.

Iron Falling

Iron ore, Australia’s biggest export, will probably fall to $115 a ton by year-end from $138.60 now, based on a Bloomberg survey of analysts. The decline would result in a 21 percent tumble for 2013, data from The Steel Index Ltd. show.

“I’m quite bullish” on Australian bonds, said Hideo Shimomura, the chief fund investor at Mitsubishi UFJ in Tokyo, which oversees the equivalent of $60.3 billion and is a unit of Japan’s largest publicly-traded bank. “The Australian economy is not recovering. There’s no momentum in the Chinese economy.”

Ten-year yields will be less than 3 percent by year-end, Shimomura said. The rate hit a record-low 2.698 percent in June.

Traders are pricing in a 70 percent chance the RBA will lower borrowing costs by a quarter percentage point to a record 2.75 percent by its July 2 meeting, according to interest-rate swaps data compiled by Bloomberg. The odds were 52 percent at the end of March.

The Reserve Bank said waning growth in mining investment, a strong exchange rate and fiscal consolidation are weighing on the economy, the minutes of the April 2 meeting showed this week.

The Australian dollar changed hands at $1.0318 as of 1:16 p.m. in Sydney, extending its record nine-month run above $1.

Inflation Contained

The Reserve Bank said in its statement that inflation will probably hold close to its target of 2 percent to 3 percent, giving it scope to cut interest rates. The unemployment rate climbed to 5.6 percent in March, the highest since November 2009, government data released April 11 showed.

Deutsche Bank AG is forecasting 10-year yields will jump to 3.75 percent by year-end, after reducing the prediction from the 4.25 percent given in this month’s Bloomberg survey.

Australian yields will follow U.S. Treasury rates, said David Plank, Sydney-based head of research at the bank.

“The U.S. recovery, certainly by the later part of this year, will be well in train and will push U.S. yields up,” Plank said. Deutsche Bank changed its Australian forecast because of softer recent U.S. data, he said.

U.S. economic growth will quicken to 2.6 percent in the fourth quarter from 0.4 percent in the last three months of 2012, the Bloomberg surveys of economists show.

Australian yields are poised to fall, said Vimal Gor, who oversees the equivalent of $13.4 billion as the Sydney-based head of income and fixed interest at BT Investment Management, which is part of Australia’s second-biggest bank.

“The RBA will likely cut a couple more times this year, he said. ‘‘Growth is anemic and the fiscal situation is deteriorating.’’

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