U.S government debt, off to its worst start since 2009, is poised to turn around as global central-bank action fails to spur economic growth, according to James Keegan of Seix Investment Advisors LLC.
Even as central banks from the Federal Reserve to the European Central Bank have kept interest rates at record lows and added monetary stimulus since the start of the financial crisis, the moves have failed to filter into the global economy, said Keegan, chief investment officer at the Upper Saddle River, New Jersey-firm that manages about $30 billion. This has given politicians cover to not deal with unprecedented debt loads that will further hamper growth, he said.
“Central-bank action is just papering over problems that no one seems to really want to address,” Keegan said in an Jan. 30 interview at Bloomberg LP headquarters. Central banks have “impacted asset prices, but their effect on the economy has been much less. As long as these problems are still here, yields have no reason to rise significantly.”
The benchmark 10-year yield rose one basis point, or 0.01 percentage point, to 2 percent at 12:13 p.m. New York time, according to Bloomberg Bond Trader prices. It touched 2.03 percent yesterday, the highest since April 25.
Treasuries have lost 1.1 percent this year, according to Bank of America Merrill Lynch Indexes, the worst start since they lost 3.4 percent in 2009. The Standard & Poor’s 500 index has risen 5.3 percent this year.
Investors should buy Treasuries and de-risk their holdings as the economy worsens and demand for high-quality assets increases, with central banks creating scarcity by soaking up large amounts of the debt, Keegan said.
U.S. gross domestic product, the volume of all goods and services produced, dropped at a 0.1 percent annual rate during the fourth quarter, the Commerce Department said yesterday, weaker than any economist forecast in a Bloomberg survey.
Consumer comfort declined for a fourth straight week as Americans’ outlook on spending soured, a sign the payroll tax increase that kicked in at the start of the year is starting to ripple through the economy. The Bloomberg Consumer Comfort Index dropped to minus 37.5 in the period ended Jan. 27, the lowest reading since October, from minus 36.4 in the prior week.
The International Monetary Fund cut its global growth forecast Jan. 23 to 3.5 percent for this year, from 3.6 percent in October.
“We are still in the midst of an extended period of slowing growth and in the fifth inning of the deleveraging cycle,” said Keegan. “Until we are done, there will be no reason for rates to rise and less impetus for the Fed to change its course of action.”
Keegan’s Ridgeworth Total Return Bond Fund (SAMFX:US) has gained 3.1 percent over the past year, beating 16 percent of its peers. It has returned 6.8 percent over the last five years beating, 73 percent of its peers.
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