JPMAM's Michele: Rotate out of government bonds into banks, EM

LONDON (Reuters) - JPMorgan Asset Management will extend its fixed income holdings further out on the spectrum, handing government bonds back to central banks and rotating out of liquid names into specific sectors such as bank capital, the fund manager said on Friday.

The change in investment stance had been made against expectations that a “probable recovery path suggests central banks at their lower bound for years, little inflationary pressure and bond yields in another lower-for-longer environment,” said Bob Michele, global head of fixed income at JPMorgan Asset Management, in a note to clients.

Michele said he favoured securitized credit markets, where short, amortizing, high quality consumer loan securitizations would be able to withstand a slow recovery.

“Finally, our interest is returning to the emerging markets. Local sovereign debt and FX have plenty of room yet to rally, and the external debt market offers value through sub-Saharan Africa,” he added.

On the U.S. economic outlook, Michele added it could take as long as a decade for the world’s biggest economy to reach its long-term potential again.

Reporting by Karin Strohecker; Editing by Dhara Ranasinghe