The Case for a Historically Strong Bond Ends Bull Run

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By Aaron Saldanha

Reuters on “.

Huge fiscal stimulus in the United States and labor shortages could push wages up again, perhaps overcoming long-standing deflationary trends resulting from the boom in technology and industry. impact of globalization on the price of goods and labor, said Leaviss, director of public fixed income investments at M&G. Investments.

“The very long-term story and the downtrend in bond yields is still in place… you have to be really sure of yourself to bet on structurally higher inflation and bonds (yields). If ever, however, it could be now, ”Leaviss, who runs the widely read Bond Vigilantes blog, told the Reuters Global Markets Forum on Monday.

Government bonds have provided investors with huge gains this year, amid market uncertainty around the Delta variant of COVID-19 and continued bond purchases by global central banks, yields of Greek 10-year bonds were even reduced to almost 0.5% last month.

Citing the example of the short sale of Japanese government bonds – a deal often referred to as the “widowmaker” – Leaviss said that the “increasingly Japanese” characteristics of the United States in terms of the demographic outlook , debt burden and potential growth mean having the idea of ​​The yield on US Treasuries (USTs) to zero in the decades to come is not unfathomable.

Chart: US Treasury yield curve at August 9, 2021 and end of 2020, https://fingfx.thomsonreuters.com/gfx/mkt/myvmnmlempr/US%20BMK.png

“Bond bubble! We’ve been talking about this since I started in bond markets in 1992! And every year bond yields have gone down pretty much,” Leaviss said in a forum post.

Leaviss currently has a short duration on US bonds for the funds he manages, but does not expect a massive sell-off, adding that he would buy back some duration if 10-year UST yields hit around 1.6%. . He thinks longer-dated T-bills “look a little expensive, but not inherently fake.”

For the Fed, Leaviss expects the bank to announce plans to cut its massive bond buying program in September, to take effect in November.

M&G managed 367.2 billion pounds ($ 509.67 billion) at the end of fiscal 2020, across all asset classes, including bonds, real estate and stocks.

(This interview was conducted in the Reuters Global Markets Forum chat room on Refinitiv Messenger. Join GMF: https://refini.tv/33uoFoQ)

(Reporting by Aaron Saldanha in Bengaluru and Divya Chowdhury in Mumbai; Additional reporting by Supriya Rangarajan in Bengaluru; Editing by Patrick Graham and Devika Syamnath)


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