Fidelity Investments fund manager Jeff Moore hasn’t been this excited about the bond market in a long time.
The sell-off in U.S. and Canadian bonds has raised yields due within 10 years to levels at which investors can finally get decent returns, according to Moore, who co-manages more than $50 billion in Canadian and U.S. fixed income for Fidelity.
“I’m actually more excited going forward than I was in the last five years,” Moore said in a phone interview from Merrimack, New Hampshire. “You may have a period where rising rates affect the prices, but over the course of one, two and three years these higher yields mean that investors can increase their bond market expectations.”
Yields on 10-year Treasuries briefly broke above 3 percent for the first time since 2014 last month and prominent investors like Paul Tudor Jones and Ray Dalio said a full-on bear market is all but inevitable. In Canada, yields on two-year and five-year government debt have reached the highest since 2011.
Yet Moore argues that the market has already priced in three more hikes from the Federal Reserve over the coming year and two from the Bank of Canada. For yields to go up further and cut the value of bonds even more, the central banks would have to move faster than that. He thinks that’s unlikely.
“I don’t feel like they have to jawbone the market higher,” he said. “If anything, they feel more like price takers, they’re comfortable to raise rates if the market is going to price it in first.”
Both the Fed and the BOC can let inflation run slightly above target as the central banks remain wary of changes in trade policies, which may affect currency rates, he said.
Moore sees credit fairly valued and favors U.S. banks and industrials as they are the biggest beneficiaries of corporate tax cuts and other business-friendly measures adopted by the U.S. administration.
The yield on 10-year U.S. Treasuries fell one basis points to 2.94 percent on Monday, while the rate on same-maturity Canadian bonds fell the same amount to 2.32 percent.