TOKYO, March 12 (Reuters) - Loomis Sayles Bond Fund is keeping the average maturity of its portfolio short as it sees U.S. bond yields rising further, with the 10-year Treasury yield probably reaching a peak of 4 percent, its co-manager said on Monday.
So far this quarter, U.S. bond markets have gone through the sharpest sell-off since late 2016 on worries that U.S. President Donald Trump’s tax cuts and spending plans could stoke inflation, which has been subdued for years.
“I think it’s appropriate to keep maturities reduced,” said Dan Fuss, vice chairman of Loomis Sayles and one of the world’s longest-serving fund managers, who has been managing bonds since 1958.
“At a time like this, when you’re in a rising rate environment, which, by the way, is what I grew up in, you needed enough reserves, not completely inactive reserves,” he said.
Fuss thinks the 10-year yield will rise further to 4 percent at peak, from current levels around 2.8 percent. The two-year yield could rise to around three percent , he added.
The 84-year-old veteran expects three rate hikes by the Federal Reserve this year and expects the 10-year yield to advance 50 bps and the 2-year’s to rise 75 bps from current levels by year-end.
But Fuss also said political uncertainties had a large role, because of two of Trump’s decisions, to impose tariffs on imports of steel and aluminium and to hold a summit with North Korean leader Kim Jong Un by May.
“War of any kind (including trade wars) is bad news and it’s far more important than what the Fed does or what the latest statistics are,” he said. (Reporting by Tomo Uetake Editing by Clarence Fernandez)