| BUSINESSWEEK ONLINE : NOVEMBER 8, 1999 ISSUE | ||||||||
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| BUSINESSWEEK INVESTOR
'If You Want to Buy Bonds, Buy Now' Despite the specters of inflation and Federal Reserve interest-rate hikes that have pushed bond-market yields to their highest level in 24 months, Daniel Fuss, vice-chairman of Loomis Sayles and veteran manager of the Bond and High-Yield funds, remains a bull. His bond fund is up 1.83% year-to-date, vs. -1.75% for the Lehman Bros. Govt./Corporate Index, and his high-yield fund is up 12.54% year-to-date vs. 0.49% for the Merrill Lynch High Yield Index. One reason is that in today's troubled market, Fuss, a value investor, is finding bargains. ''I focus on what's cheap,'' he says. Fuss spoke with Personal Finance Editor Toddi Gutner about where he finds value. Q: What's your inflation outlook? A: Inflation is higher than it has been reported in the consumer price index. The lag in the reported CPI number will catch up [with the market] sometime next year, at the same time the economy is slowing down. Fewer bonds will be issued, and demand will increase. As a result, I think we will have a bond rally some time next year--yields will fall, and prices will rise. So if you want to buy bonds, buy now. Q: What will the Fed do over the next few months? A: It will raise short rates another quarter to half a point before the end of the year, depending on how strong the economy is. Q: Where do you see 30-year Treasury bond rates in six months and one year? A: We're at 6.39% today, up from 5.13% a year ago. I think we've seen the bottom, though rates may spike up to 6.5%. But next year this time, I see long bond rates at 5.5%. When the economy does slow, I anticipate rates to get as low as 4% to 4.25%. In fact, I'd bet on it. Our rates are still high relative to the rest of the world. Q: Given this outlook, what are you buying? A: My biggest holding [in the bond fund] is in investment-grade corporate bonds, yielding 7.7% and up, that I can buy at a discount. You can still find value in high-yield, but I'm far more careful about credit quality than I was a year ago. I'm not bashing high-yield, but you'd better be careful and do your research. Q:Anything foreign? A: I've got nearly 20% of the bond fund in emerging markets, mostly South America, including Argentina, Chile, and some Central America debt in Costa Rica. We've been net sellers of Asian debt. Because I'm bullish on the Canadian currency, I also really like Canadian federal and provincial debt--except for the province of British Columbia--and some Canadian utilities. _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
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