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Despite calls from many corners that the possibility of a recession has eased, some of the world's biggest bond managers are reportedly sticking to their forecasts for a downturn and advise hedging any bets on risky assets.
The bond managers believe 10 consecutive rate hikes by the Federal Reserve have already done the damage while the U.S. banking collapses were a precursor to a bigger crisis as central banks continue to stay hawkish.
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Steve Ellis, global fixed-income chief investment officer at Fidelity International told Bloomberg that something akin to a credit crunch is what he is most concerned about. Central banks' continued tightening shows they're fighting last year's battle, he stated.
Ellis has built up positions in government bonds with a view that when central banks pause or pivot, the assets will outperform. He expects the 10-year yield to drop to 3% as markets begin to realize the recession will be deeper, the report said.
Price Action: The iShares 7-10 Year Treasury Bond ETF (NASDAQ:IEF) lost 2.54% in the last month. The iShares 1-3 Year Treasury Bond ETF (NASDAQ:SHY) shed 1.08% while the Vanguard Short-Term Treasury Index Fund ETF (NASDAQ:VGSH) lost 1.09% during the period, according to Benzinga Pro.
According to Mike Riddell, a portfolio manager at Allianz Global Investors, stocks, bonds and corporate debt are mispricing the risks and only inflation-rate swaps have got the economic outlook correct.
"Our base case is for a moderate-to-deep recession — and potentially crises — as the unprecedented pace of global policy tightening seen over the last year starts to really bite," Riddell said. The portfolio manager recommends being bullishly positioned in rates and bearishly positioned in risk assets, the report stated.
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