Blackrock, Janus Henderson, Pacific Investment Management (Pimco), and Vanguard are among the growing number of money managers padding their portfolios with treasury bonds maturing in 10 years or longer.
From 18 through 25 October, funds focused on long-dated bonds took in $5.7 billion in new investments, the largest one-week haul on record, according to data service EPFR.
Bond prices have crashed this fall, driving the yield on the 10-year bond above 5 percent, territory it has not visited since 2007. Bond yields rise as prices fall.
Although the economy grew at 4.9 percent in this year’s third quarter, asset managers are betting on an economic slowdown caused by persistent high interest rates that will slow consumer spending and business investment.
A downturn would boost bond prices.
“These higher yields will eventually slow growth,” Pimco portfolio manager Mike Cudzil told the Financial Times. “We’re set up to play offense in the event the economy begins to slow.”
“We’re going long duration in the more aggressive strategies,” James Cielinski, chief fixed income strategist at Janus Henderson, said to the FT. “If you can bear the volatility, the more attractive yields plus opportunity for capital appreciation is there over the next six to 12 months.”
When the economy turns down, “only bonds actually protect your capital,” Ales Koutny, Vanguard’s head of fixed income, said to the FT.
TRENDPOST: Money managers’ shift to long-dated bonds aligns with our long-standing forecast that the U.S. economy will get worse before it gets better, sliding into recession over the next few months.