Investors should avoid government securities, including U.S. Treasuries and the debt of other nations, because of the risks associated with excessive borrowing, a leading U.S. fund manager said on Tuesday.
"The most dangerous market there is national government debt because the borrowing doesn't seem to be ending soon — and it's not just a U.S. phenomenon," Dan Fuss, vice chairman of investment manager Loomis Sayles, told Reuters.
"I call it the new 'large-cap market' for its burgeoning size," he said.
Fuss does not expect the U.S. Federal Reserve to raise short-term interest rates at any time in 2010, noting that the economy still has not turned the corner on recovery.
Moreover, job creation will not develop for some time, said Fuss, who helps oversee more than $142 billion in assets at Boston-based Loomis.
"The only hiring being done is in the government sector," he said. "High-paying jobs are few and far between, with the only exception being Wall Street."
On Tuesday, the president of the Federal Reserve Bank of Chicago, Charles Evans, said weak U.S. labor markets are likely to justify easy money policies.
"Labor market issues ... lead me to think this accommodation will likely be appropriate for some time," Evans told the National Association for Business Economics.
Last Friday, the Labor Department reported that U.S. employers cut 36,000 jobs in February, less than markets had expected, and the unemployment rate was unchanged at 9.7 percent.
David Rolley, portfolio manager for the fixed-income group at Loomis, told reporters at an investment luncheon on Tuesday that the U.S. dollar has benefited in recent weeks on the perception that it is the "un-euro" currency.
"We are cautious on all currencies ... but we do over-own on the periphery," Rolley said. Loomis holds the currencies of Mexico, Canada and Brazil.
David Sowerby, a Loomis equities portfolio manager, said he sees U.S. equities posting returns in the "low double-digits" this year even after the Standard & Poor's 500 index rose more than 60 percent from its early March low.
All told, Fuss said the trajectory on U.S. Treasury yields is up and forecasts that the yield on the 10-year Treasury note could peak 6.25 percent for the cycle.
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