Citywire printed articles sponsored by:
View the article online at http://citywire.co.uk/wealth-manager/article/a701160
Swip’s Carver underweight gilts and warns US tapering is now fully priced
by Elsa Buchanan on Sep 10, 2013 at 11:24
Carver (pictured) is underweight UK government debt and while he deems the market ‘interesting’, he expects further volatility, albeit in a fairly narrow trading range.
‘We think that with the inflation outlook in the UK definitely worse than it is in the US, there is potential for UK gilt market prices to weaken further relative to the US,’ he said.
‘Tapering [of quantitative easing (QE)] is pretty likely to happen in September. How will the US economy cope with that?’ Carver said.
‘We have seen some moderation in the excitement over house prices in the US following the tapering announcement, so the main view is probably that there will be more range trading in the next couple of months, and very unpredictable price actions.’
However, he says if the economy remains stable, bond yields will probably only rise by 20 basis points (bps).
‘We think the US is probably more close to being fully priced. The Bank of England (BoE) stopped QE a long time ago, while the Federal Reserve is only just thinking about it, so the UK bond market should be priced more above the US market. Yet it is still trading below the US market in the 10-year part of the curve,’ he said.
Carver explained his ‘the world is getting better’ trade has led him to move to zero duration. This paid off in the second quarter when credit spreads ‘didn’t do anything’ and bond yields rose quite steeply.
‘We made a good bang for our buck in the first and second quarters as rate markets rose, with about 70-80bps of our performance in the second quarter coming directly from interest rate markets,’ he said.
A strong 2012
News sponsored by: