UPDATE 1-Templeton's Hasenstab: Japan easy money will bolster global liquidity

Wed Jun 18, 2014 5:42pm EDT

(Adds further Hasenstab comment, details on fund performance and investor withdrawals in paragraphs 5-9)

By Tim McLaughlin

CHICAGO, June 18 (Reuters) - Templeton bond fund manager Michael Hasenstab, an influential voice on emerging market debt, said on Wednesday that Japan's easy money policy will bolster global liquidity, but he also warned that debt conditions in the Asian economy are worrisome.

Hasenstab, who runs the $72 billion Templeton Global Bond Fund for Franklin Resources Inc, said he is concerned that the Bank of Japan is on course for "excessively easy monetary policy." He added that any investors worried about debt levels of the United States "should be petrified about the debt conditions of Japan."

Hasenstab made his remarks in Chicago at Morningstar Inc's annual investment conference, where he was a keynote speaker.

Hasenstab said the Bank of Japan's easy money policy will bolster the liquidity of global bond markets. That could be a benefit for debt issued by emerging market countries because it will make their bonds relatively easier to trade.

Hasenstab's fund has an emerging markets tilt and he is known for making contrarian bets on the bonds issued by Ukraine, Ireland and Hungary.

In 2014, his global bond fund's total return of 3.1 percent is lagging 80 percent of his peers, according to Morningstar. Over the past 12 months, investors have made $3.7 billion in net withdrawals from the fund, according to data from Lipper Inc.

Still, Hasenstab has an enviable long-term track record and he has positioned his global fund to avoid interest rate risk by buying short-duration bonds. Those bonds will be less sensitive to any spike in interest rates.

Meanwhile, he is willing to invest in countries whose debt offers much better yields than developed markets such as the United States, Germany, Japan, Sweden and the United Kingdom.

Many of his rivals invest heavily in those countries because they dominate the benchmark Citigroup World Government Bond Index.

Hasenstab said he ignores the index and brushed aside concerns that the credit profile of his fund has deteriorated. He noted how Irish bonds are now rated investment grade, but when he bought them in 2011, at the depths of the euro zone crisis, the debt was rated junk. (Reporting by Tim McLaughlin; editing by David Gregorio and G Crosse)

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