Loomis Sayles' Dan Fuss sees higher U.S. bond yields after Trump win
REUTERS BUSINESS NEWS | Thu Nov 10, 2016 | by Tomo Uetake
| Dan Fuss |
Dan Fuss, one of the world's longest-serving fund managers,
said on Thursday that he had revised up his forecast of U.S. government bond
yields next year after Donald Trump was elected the next president.
"I would guess that a year from now, the 10-year Treasury
yield is going to be somewhere around 2-3/4 to 3 percent. I was at 2-1/4 to
2-1/2 before the election," Fuss, vice chairman of Loomis Sayles, told
Reuters.
U.S. Treasury prices have plunged and their yield jumped since
Wednesday as Trump's policies - from a protectionist stance on trade to fiscal
expansion - are perceived to be stoking inflation, one of the biggest enemies
of bonds.
Fuss, sometimes called "the Warren Buffett of
bonds", said his fund had weathered the rout because he had reduced risk
by shifting to short-term bonds. The 10-year U.S. Treasury yield shot up to a
10-month high of 2.092 percent US10YT=RR on Wednesday from a low of 1.716
percent hit earlier in the day. The yield had fallen to its record low of 1.321
percent just four months ago as investors piled into the market on the twin
specter of slow global growth and a prolonged period of negative interest rates
in Europe and Japan.
"What Trump will do is cut taxes and spend more on
infrastructure programs," Fuss said. "And then he said he will find
ways to save money. That's fine, but what that means to me is that the budget
deficit will be bigger and that means more Treasury financing."
Fuss, 83, maintains his view that the Fed will increase rates
by 25 basis points at its policy meeting in December unless there is
significant turbulence in the markets.
"I would anticipate both stocks and bonds bouncing around
for a week or so, just like after Brexit, then quiet down," he said.
"If it does not quiet down, then I think our central bank
will not raise rates. But I do expect that it will quiet down and I expect they
will raise rates by a quarter of one percent in December."
Fuss said he did not expect Trump to win the election and he
was surprised by the markets' reaction.
But he added his flagship fund (LSBDX.O) managed to avoid big
losses by holding mostly short-dated bonds, the price of which falls much less
than longer peers when yields rise, as he had expected a likely Fed rate rise
to weigh on the market.
Loomis Sayles had $245 billion in assets under management as
of September 30.
The Boston-based portfolio manager also said the markets had
yet to grasp the ramifications of Trump's victory.
"History is full of surprises and I have been surprised
many times," he said. "I have never encountered this particular
change, which is a change toward the world of populism - in the United States,
Europe and maybe in Asia also."
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Note: Dan Fuss is a Marquette alumnus and special friend of Marquette's AIM program.
