USTs Are a ‘Veritable Bargain’ to Foreign Investors: Eichstaedt
(Bloomberg) -- “Rates offer some good value here,” given abundance of negative-yielding debt from regions including Europe and Japan, Carl Eichstaedt, who manages the $18b Western Asset Core Plus Bond Fund, said on Bloomberg TV.
- Fund has extended maturities “a little bit” to take advantage of bond market underperformance; continues to allocate more resources to banking sector, which “offers tremendous value” as it trades at a discount to industrials
- Still likes structured products, namely commercial mortgages and select student loans
- Base case for bond market is “running yield”; not expecting big capital gains from massive spread tightening or much lower rates, though there are potential opportunities in some EMs like Mexico and Brazil
- “Markets have traded pretty rationally”; would estimate another 75bp to GDP should fiscal stimulus materialize, though Fed may limit that to the extent it risks too much inflation
- Not expecting to see a huge spike in inflation, though still a possibility depending on which policies Trump is able to pass
- Fund is about 10% TIPS, about 10% duration in real rate form
- Sees more room to go for breakevens, which are “a natural hedge against a couple of bad scenarios”
- Investors now arguably have lower level of confidence in their calls given uncertainty about which policies Trump will be able to pass
- Not concerned about prospect of greater issuance, as “technicals can win the battle but fundamentals win the war”
- “If you think corporate America is still in good shape, spreads are going to hang in there regardless of supply”
Alert:
HALISTER1Source: BFW (Bloomberg First Word)
Tickers WACPX US (Western Asset Core Plus Bond Fund)
People Carl L Eichstaedt (Western Asset Management Co)
To de-activate this alert, click
hereUUID: 7947283