Bloomberg News

Manulife Asset Avoids Treasuries, Prefers Asian Debt, CIO Says

June 08, 2011

June 8 (Bloomberg) -- Manulife Asset Management, a unit of Canada’s largest insurer, prefers Asian government and corporate bonds to Treasuries as lower U.S. yields diminish returns.

“We are very underweight” on Treasuries, Chief Investment Officer Barry Evans, who helps oversee $217 billion in assets globally, said yesterday in an interview in Singapore. “I don’t want to own Treasuries because their risk-return isn’t there.”

Standard & Poor’s cut its outlook for the U.S. credit rating to negative in April and said policy makers hadn’t agreed on a strategy to reverse fiscal deterioration. Inflation that’s higher than Treasury yields also sapped demand for the bonds.

The difference between the yields on 10-year Treasuries and the rate of inflation, known as the real yield, fell to more than a two-year low of 22 basis points on June 1 when 10-year yields dropped below 3 percent for the first time this year.

Ten-year yields will rise to 3.48 percent by the end of September from 2.99 percent today, according to a weighted Bloomberg survey of economists and analysts.

“My bias with Treasuries is we’ll see 3.5 percent twice as much as we’ll see 2.75 percent” for 10-year yields, Evans said. “You want to have underweight and play that to it.”

U.S. debt has returned 4.1 percent for the past 12 months, lagging behind gains in dollar-denominated government bonds issued by Asian countries, including South Korea, according to indexes compiled by Bank of America Merrill Lynch.

Yu-Ming Wang, head of fixed income in Asia at Manulife Asset, said he’s overweight in South Korean bonds.

“We are overweight on the country in general. We are also pretty balanced” between corporate and sovereign debt, he said with Evans in the interview yesterday. “The reason for that is we think we can make money in all three ways, the yield curve, credit and currency.”

Dollar-denominated South Korean government debt has returned 7.8 percent for the past year, the Merrill Lynch index showed.

--Editors: Nate Hosoda, Jonathan Annells

To contact the reporter on this story: Masaki Kondo in Singapore at mkondo3@bloomberg.net.

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.


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