SINGAPORE – There is a “generational amount of yield” in bond markets and it is time to buy debt, with a return of as much as 8% on offer in the US over the next the year, Bob Michele, J.P. Morgan Asset Management’s head of global fixed income, said on Oct 27.
The bond market has rebounded following a sell-off in October and September, especially in developed-market sovereign debt.
“We expect both the Fed funds rate and the Treasury curve to converge (around 4.5%),” Michele told reporters in Singapore.
“Generally at the end of a hiking cycle the yield curve is flat… so there’s plenty of room for yields to run from where they are.”
Carry and price appreciation are likely to deliver a return in the US market of 7% to 8% over the next 12 months, he added.
US 10-year yields were around 4.99% on Oct 27 having spent much of the past few weeks above 5%.
Investors expect the Fed funds rate window to stay at 3.75% to 4% when the Federal Reserve announces its interest rate decision on Oct 28.
“There is yield all over the place,” said Michele. “When we looked at the Treasury curve a few weeks ago when it first went above 5%, to us the buy signal was real yield in the US that got to 3%. The last time we saw that was 2002. So at close to 25 years, that’s a buying opportunity.”
Japan, Australia, investment-grade credit and emerging market sovereign debt are among the stronger picks, he said.
“Everyone senses there’s a generational amount of yield in bond markets,” he said. “It’s pretty clear with the global capex cycle out there, recession is a very low probability. That means every back-up in credit spread (you) should buy.”
The “tail risk,” he said, was the Fed needing to hike much further than 4.5% to contain inflation. REUTERS
