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US bond sell-off fears ‘really overblown’, says JPM’s Sheikh

US bond sell-off fears ‘really overblown’, says JPM’s Sheikh

Long-term developed markets bonds look attractive as the back end of the US Treasuries curve may flatten further causing yields to drop lower. 

This is according to JP Morgan Asset Management’s Talib Sheikh, the Citywire + rated who runs the €10.1 billion JPM’s Global Income fund alongside Citywire AA-rated Michael Schoenhaut

‘The global disinflationary environment, along with the extraordinary measure from the BoJ and potentially the ECB, mean that US yields at the long-end can go lower, clearly around 2.80%,’ he said.

‘We are not calling for a huge rally, but talk of a large sell-off look really overblown,’ he added.

The manager is relatively bullish on the idea of maintaining his duration exposure, particularly at the back end of the US treasuries, in this environment.

‘Despite stronger US economic data, the US yield curve may flatten. This could be increasingly led by the front end of the curve as we approach the Fed’s lift off date for rate rises in mid-2015,’ he said.

Sheikh added that his position is driven by the notion of a global bond term premium, as well as being a factor of long-term rates reacting to global patterns such as the search for yield and desire for safety.

Bullish on equities

Elsewhere, the multi-asset manager continues to think equities are the best place to be. ‘Our preference tends to be for developed markets where growth appears to be most stable.’

With the European Central Bank likely to introduce some form of quantitative easing, he said the dividend yield from European equities continues to look attractive.

‘We’re able to capture approximately 5% dividend yield on relatively cheap valuations, particularly compared to bonds.  US financials is another area where distributions have the potential to increase,’ he added.

Fixed income plays

In fixed income, Sheikh prefers extended credit, such as high yield, over core fixed income, such as government bonds and investment grade corporate debt.

‘Our positioning in high yield debt is lower than it has been historically.  We remain relatively constructive on the sector because fundamentals are supportive and default rates remain low, but we are finding more attractive opportunities elsewhere,’ he concluded.

Over the past three years, the Global Income fund returned 37.02%, while the LCI MSCI World Barclays Global Aggregate index rose EURH rose 36.67%.

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