TOKYO (Reuters) - Dan Fuss, vice chairman of Loomis Sayles and one of the world’s longest-serving fund managers, said on Monday he is more cautious on bonds than at any time since the 1970s, as political uncertainties cloud an otherwise solid economic outlook.
Fuss, 83, told Reuters in an interview said in the past couple of years, his flagship “Loomis Sayles Bond Fund” has halved the average maturity of its holdings to 6-1/2 years, from 13 years, to limit risks stemming from such uncertainties.
“Have we ever been this cautious before? Not recently,” said Fuss, who started his career in bond investment in 1958.
“In my early days in the ‘60s and ‘70s, a certain amount of caution periodically was helpful,” said Fuss.
Global bond yields generally have declined since the late 1970s, as inflation has subsided. Now, some market players wonder if the trend has hit a turning point.
Fuss, sometimes called “the Warren Buffett of bonds”, said rising political risk warrants caution in bond investments.
“The biggest problem that our central bank has right now is not the economy. Our economy is fine,” he said.
“The uncertainty is very high. For instance, if U.S. policy becomes unfriendly to Mexico, then the U.S. economy will have a huge problem,” he said.
U.S. bond prices tumbled late last year on expectations that Donald Trump, after becoming U.S. president, and a Republican-controlled Congress would push for tax cuts, deregulation and infrastructure spending.
The 10-year U.S. Treasuries yield rose to a two-year high of 2.641 percent in mid-December, but has been capped mostly below 2.5 percent this year.
Now, rising expectations of a Federal Reserve rate hike next week, have pushed up short-term U.S. government debt yields, with two-year notes touching a fresh 7-1/2-year high.
Boston-based Fuss said he expects the Fed to raise rates three times this year, as economic numbers are good and there’s pressure from small U.S. banks hurting from low interest rates.
“Earlier, I didn’t think there will be three hikes this year but now it looks likely,” he said.
As of Dec. 31, Loomis Sayles had $240 billion in assets under management.
Reporting by Tomo Uetake; Editing by Richard Borsuk