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RLAM's Greetham Sees Further Rise in Bond Yields

Image: RLAM's Greetham Sees Further Rise in Bond Yields

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Tuesday, 15 Nov 2016 01:45 PM

U.S. Treasury bond yields could rise another 100 basis points and UK gilt yields another 50 basis points, but stimulus packages will help global equities withstand this, Royal London Asset Management's Trevor Greetham said on Tuesday.

Greetham, who is head of multi-asset at UK fund manager RLAM, said the sell-off in global bond markets would continue, but it was unlikely to destabilize the global economy and markets.

Investors have been dumping bonds after Donald Trump won the U.S. presidential election, as investors brace for rising inflation in the United States amid expectations of expansionary fiscal policies.

Gilts have also been hit by worries about inflation in a post-Brexit world and have sold off further after Trump's victory. Higher inflation tends to depress bond prices, lifting yields in the process.

"Gilts have poor value. There's potential for yields to rise another 50 basis points or so," Greetham told the Reuters Global Investment Summit in London. "I see more upside to U.S. Treasury yields - maybe another 100 basis points upside."

Greetham is currently overweight U.S., Japanese and emerging market equities in his 50 billion-pound multi-asset portfolio, citing the constructive backdrop for growth and massive fiscal stimulus from the United States.

"There's a tailwind in terms of the macro data, policy and seasonality," he said, adding that U.S. retailers tend to benefit from higher consumer spending between Thanksgiving and the January sales.

Greetham has been adding to his Japan equity overweight since Trump's victory. But he has trimmed his emerging markets overweight a little in view of the dollar's strength.

He argued that Japan was likely to benefit from a strong dollar, since it imports commodities but exports consumer goods to the United States.

 

But the outlook for emerging markets is more uncertain in light of the protectionist stance taken by Trump in his campaign. Emerging market assets have sold off since Trump's victory, with investors concerned about the imposition of trade tariffs, which could roll back the benefits of globalization.

However, Greetham said the trade uncertainty was something of a "phony war." "There'll be no sign of it for months and it may not happen, but you'll get stimulatory offsetting behavior," he said, drawing parallels with worries about the impact of Brexit on the UK economy.

He argued the fear of trade barriers would keep policy loose in China, despite strong money supply growth and booming house prices, which would help emerging markets. "We're not in an environment where it's out and out bad news with the strength of Chinese activity and global demand."

Greetham is underweight European equities, citing political flashpoints next year with elections in France and Germany and skepticism over whether the euro zone will hold together.

"Brexit and Trump will be energizing the forces of disintegration in the euro area," he said. "You will see further stress and you're starting to see it now in the bond sell-off after Trump's victory."

He said Italian bond spreads had widened dramatically and French spreads were starting to move out even with the European Central Bank buying in the background. "So it's an existential crisis for the euro area. It's an area we think will be a source of the shocks of the next 12 months."

 

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InvestingAnalysis
U.S. Treasury bond yields could rise another 100 basis points and UK gilt yields another 50 basis points, but stimulus packages will help global equities withstand this, Royal London Asset Management's Trevor Greetham said on Tuesday.
bond, yield, treasury, greetham
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2016-45-15
Tuesday, 15 Nov 2016 01:45 PM
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