Bob Michele, who in April told investors to enjoy the ride in risk assets, is now looking to ride U.S. Treasury yields “all the way down to zero.”
For Treasury 10-year notes, “I think that’s where we’re headed over the next couple of years,” Mr. Michele, chief investment officer and head of global fixed income at JPMorgan Asset Management, said Thursday. “The rally in bonds hasn’t even begun yet.”
Central banks will succumb to threats ranging from the global trade war to tepid inflation and cut borrowing costs to nothing, Mr. Michele said. His colleagues on JPMorgan Chase & Co.’s advisory side made a similar call this week, saying the global pile of negative-yielding debt is becoming a tar pit that will eventually suck in the U.S. government bond market.
Advertisement
“We’re in a trade war, you’re seeing the impact on corporate earnings, you’re seeing the central banks forced to scramble to react to that,” Mr. Michele said. “We’ve had the recovery, it’s coming to an end and now the central banks one after another are falling into line and cutting rates. At this point in the cycle you need some shock and awe.”
The yield on 10-year U.S. Treasuries was at 2.05% Thursday morning in New York, after the bonds halted a rally that had sent the 10-year yield to its lowest close in more than two years at 1.9498% on July 3.
Mr. Michele changed his bullish call on credit in June and switched to government bonds instead, saying the “future looks pretty bleak.”
Central banks “haven’t been able to create higher inflation expectations over the last couple of years,” he said. “The only thing they have left to do is cut rates as far as they can and probably expand balance sheets.”
(More: Negative-yielding bonds top $9 trillion as growth worries revive)
