BOJ’s Peg to Zero Means Opportunity in U.S. Debt: Prudential

Updated on
  • Reach for yield in the credit sector to continue, Collins says
  • Favors U.S. banks, smaller companies that have de-levered

Prudential's Collins Sees Global Yield Curve Flattening

The Bank of Japan’s decision to freeze the yield on its 10-year government bond near zero will continue to fuel opportunities in the U.S. debt market amid a global hunt for yield, Prudential Financial Inc.’s Michael Collins said.

The BOJ’s decision "is going to keep the U.S. 10-year pegged and lower the volatility of that, which presents an opportunity," Collins, Prudential’s senior investment officer for fixed income, said on Bloomberg TV. "It exacerbates the reach for yield."

Michael Collins

Photographer: Christopher Goodney/Bloomberg

A divided Federal Reserve left its main interest rate unchanged at 0.5 percent Wednesday, while projecting that a hike is possible by year-end. It meets Nov. 1-2 and Dec. 13-14.

The decisions by central banks to leave rates "lower for longer" mean the quest for yield in the U.S. credit sector, including corporate and high-yield bonds, and asset-backed securities, will continue, said Collins. 

He said he sees opportunities in U.S. banks, consumer products and smaller companies that have not increased their borrowing, even though corporate America’s leverage is at record high.

"I’m underweight on average all those big high-quality industry companies that are levering up, and overweight the part of the economy that have actually de-levered and in the early innings of their own cycle," Collins said. "One of our favorite parts of the bond market is the asset-backed world, commercial mortgage-backed securities, collateralized loan obligations, kind of esoteric stuff."

(Updates with U.S. policy rate decision in the third paragraph.)
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