Bonds violators justified by falling US Treasury yields

Bond fund managers who resisted the market consensus earlier this year that long-term interest rates and inflation were rising sharply have been rewarded with outsized performance as the market has pulled back in recent weeks .

Star managers including Scott Minerd at Guggenheim Partners and Stephen Liberatore of Nuveen lead the industry rankings, after US Treasury yields plunged as much as 1.25% this week, from a peak above 1.7% at the end of March.

Markets have come to believe that the global economic recovery will slow down soon and that the US Federal Reserve is unlikely to lose control over inflation.

“In the end, the market ran too far ahead of the recovery,” said Liberatore, senior portfolio manager for fixed income strategies at Nuveen, whose core impact bond managed accounts outperformed all of their companies. peers since the end of March.

“We are more likely to drop below 1% [on the 10-year] that we need to be significantly above 1.5 or 1.75 percent, ”he said.

Two Guggenheim funds managed by Minerd and his team are also among the top five best performing mid-level bond funds since the end of the first quarter, according to Morningstar, with total returns above 4%.

In early March, with the 10-year note still four weeks away from its peak and his funds receiving a beating, Minerd, global investment director at Guggenheim, made the case for opponents.

“The advance conclusion today is that long-term rates are on an uninterrupted upward path,” he said at the time. “History tells us something different.”

Minerd argued that sweeping stimulus from governments and central banks would ultimately result in accumulated savings, which would eventually find a place in financial markets and lead to lower Treasury yields.

Its funds are now positive for the year and are ahead of the Bloomberg Barclays US Aggregate Index, the leading bond benchmark for investors. The aggregate has recovered 2.6% since early April for a total return of minus 0.8% in 2021 so far.

A steady decline in yields since the start of the second quarter accelerated sharply this month, which market participants attributed to a selloff of short positions by hedge funds and other momentum-driven traders whose paris had turned against them.

PGIM total return bond fund, managed by Robert Tipp, rebounded 4.15% after a difficult first quarter and is now ahead of the benchmark as he remained steadfast in his view that long-term Treasuries were down.

“The market was counting on an accommodative contingency to the Fed,” said Tipp, which would allow the economy to run at full capacity, pushing up inflation and reducing the value of long-term bonds. That narrative stagnated last month, he said, when Fed officials opened the door to a 2023 rate hike, earlier than expected.

Mark Lindbloom, who manages the Western active The core plus bond fund echoed this view. “We don’t think the Fed today, or in the future, will sacrifice its credibility” by bringing inflation under control in the 1980s, he said.


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