• Asset managers remain bullish on government bonds
• HIMCo: Various factors will inhibit inflation
Hoisington Investment Management Company (HIMCo) is a Texas-based investment advisor with more than $ 4 billion worth of assets under management. Wasatch-Hoisington U.S. The company’s Treasury Fund returned 20.07 percent last year – more than any other actively managed US Treasury fund, according to Bloomberg. The fund was founded in 1996 and has shown an average annual return of 8 percent for the 25 years since its inception.
Government bond market recovery
HIMCo writes in a semi-annual report on its Wasatch-Hoisington U.S. Treasury Fund: “US Treasury bond yields fell sharply in the quarter ended March 31, 2020 after falling significantly in 2019. The 30-year Treasury bond yield fell to 1.31% from 2.388% at the end of 2019. A through The supply and demand shock caused by the coronavirus pandemic hit a global economy that had slowed significantly in 2019. As an indication of the fragile conditions, world trade fell in 2019, only the third annual decline since 1980. [ ] Inflation fell sharply amid widespread declines in economic activity. Worse growth, falling inflation and uncertain conditions all contributed to the strong recovery in the government bond market ”.
HIMCo optimistic about government bonds
The assumption that inflation will now revive in the US and end the massive rally in government bonds and increase yields, HIMCo believes, as reported by Bloomberg, to be wrong. Therefore, according to Hoisington, it is still justified to be optimistic about government bonds. According to the financial advisor, it will take a long time to repair the economic damage caused by the corona pandemic. According to the experts, the rally in the government bond market is likely thanks to the enormous burden of global debt that is having the effect of Monetary policy weakens, and the diminished ability of government spending to help the economy continue.
Market forecasters expect interest rates to rise
“Right now, the overwhelming judgment of market forecasters is that interest rates will rise over the course of 2021, as additional fiscal stimulus coupled with loose monetary policy are expected to create an inflation cocktail as the pandemic shutdowns subside,” Bloomberg quoted Hoisington as saying. The contrary decision to “maintain a bullish stance on long US Treasury bond yields,” according to the report, is not whether interest rates can rise, as this happens temporarily every year, but whether they can stay at a higher level. Unless Congress changes the powers of the Federal Reserve, HIMCo experts predict that “long-term US policy rates will eventually fall to a lower level if inflation continues to decline.”
Inflation is inhibited
In the past few weeks US bonds have fallen, which has pushed yields up. “The reason for the rise in returns is the hope of an economic recovery after the designated US President Joe Biden had announced a significant increase in government spending to combat the Corona crisis,” as the news agency dpa reported.
Due to the high indebtedness of the USA, growth will be stunted “despite the best efforts of monetary and fiscal policy”, tax multiples seem to be ineffective partly due to high debt burdens and “the type of debt-financed operations” and increases in gross domestic product would be “worse off,” as if there had been no damage, “says Bloomberg Hoisington.
These factors will hold inflation in check, according to HIMCo, ensuring that the rally in long-dated government bonds will continue.
Finanzen.net editorial team
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