David Bianco says investors are better off investing in short-term duration debt instruments. The Chief Investment Officer of America believes that the bond market has failed to factor the risk in higher interest rates. The DWS group Americas has about $1 trillion in assets under management.
In an interview with Bloomberg television, Bianco said that investing in Treasury bills and two-to-three-year tenor notes from the US Government makes sense. It makes better sense since the Federal Reserve rate hike to 4% has not yet been priced by the market.
Traders are trying to map the path adopted by Fed to tame inflation. Concerns over the US recession have also contributed to battered fixed income markets. The swap contracts linked to Federal Reserve meeting dates show a peak hike to above 3.5% by the end of 2023 or early next year, as expected by the money market.
Bianco says that investors should be careful investing in bonds. They should look for inflation-protected bonds or hold the cash and scout for real stocks. These assets could be anything – stocks, utilities, or real estate.
The ICE BofA MOVE index, a broad gauge of the treasury market, has just come off a peak this month. This has prompted money managers to turn to US government bonds of a longer tenor.
The index is still at the highest since 2009, leading traders to relook at the prospects of tight monetary policy. Last week’s data showed June inflation increasing more than expected. The Federal Reserve meeting in early July saw swap contracts price the first entire point hike since the 1980s. Later this month, the wagers were pared back to a 75 basis point increase.
Uncertainty in a Global Economy
Uncertain growth numbers in the global economy have upended stocks, commodities, and credit – all risky assets. In contrast, the dollar has gone up in strength relentlessly. As tracked by Bloomberg this month, the greenback gained nearly against every other primary currency.
Bianco says it is tough to adapt to foreign exchange rates as they are a global set of business. In comparison, it is easier to adapt to banks and S&P500. The banks are Bravehearts while the smaller companies should do better; they were held back for two decades by globalization.
