U.S. bond fund managers are betting that the steep gains in Treasuries over the last month are here to stay.
“We haven’t gotten the inflation engine going and I don’t think we will,” said Margie Patel, a senior portfolio manager at Wells Fargo Asset Management. “It’s a horrible outcome for fixed-income investors who have been spoiled for 30 years and now they’re facing a complete yield drought that will probably get worse,” she said, adding that a fall in the yield of the 10-year Treasury to 1.5 per cent over the next year “would not be out of the question.
“The challenge is that the rest of the world is doing worse than expectations from six months ago, with Europe being particularly soggy over the last year. With the rest of the world proving disappointing and U.S. growth already decelerating, I think you will see the Fed respond,” he said. After its strong start for the year, the S&P 500 is down nearly 4 per cent since the start of May as the United States and China remain at an impasse over trade and tariffs. Further declines in the U.S. equity market could bring more waves of buyers into the bond market, further pushing yields lower, said Terri Spath, chief investment officer at Sierra Investment Management.
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