As the interest rate on U.S. 10-year Treasury bonds exceeded 5% for the first time in 19 years, investment solutions among Wall Street giants are diverging.
While those in charge of large bond management companies such as Blackrock and Pimco believe that now is the right time to invest in bonds, 'hedge fund loan' Ray Dalio warned of a debt crisis and advised people to avoid assets that are sensitive to interest rates.
The Wall Street Journal (WSJ) asked six leading asset managers on Wall Street how to respond to the surge in interest rates in a situation where the U.S. 10-year Treasury bond interest rate reached 5.241% on the 28th (local time), the highest since June 2007, and the 30-year Treasury bond interest rate also reached 5.561%, the highest since June 2002.
Rick Reeder, chief investment officer (CIO) of BlackRock's global fixed income division, who oversees assets of more than $2 trillion, said, "My funds are generating returns of more than 7% over a three-year duration. I have been waiting for an opportunity like this for 40 years."
He said that in the past, when the 10-year interest rate exceeded 5%, the 12-month return was good and โthe question is whether today is the day to enter.โ His answer is a cautious โyes.โ
Leader said that despite this year's losses, the number of investors willing to talk about bonds is increasing "explosively" and that they have started "little by little" investing in long-term bonds, whose prices rise when interest rates fall.
Dan Ivasin, CIO of Pimco, the world's largest bond management company, said, "There are signs of weakness in interest rate-sensitive sectors such as housing, but there are many consumers who have fixed low-interest loans and AI companies are continuing to invest. "We expect a certain degree of slowdown, but it is not a recession."
He said, โIt is possible to form a high-quality bond portfolio with a 6-7% return rate,โ and evaluated it as more advantageous than overvalued stocks. In the long term, it is predicted that AI investment will increase economic efficiency, suppress inflation, and help bond prices.
โMore than half of U.S. growth is coming from borrowers who are not sensitive to interest rates,โ said Brian Whalen, CIO of TCWโs fixed income division. โThe war will end and commodity prices will go down.โ
He cited the fact that bond fund funds did not flow out despite this year's losses as a positive sign, and predicted that the interest rate hike cycle would not last long.
On the other hand, Ray Dalio, founder of Bridgewater Associates, the world's largest hedge fund, pointed out that the United States spends more than $1 trillion (about 1,356 trillion won) annually on debt interest alone, and that the burden of principal and interest repayment is starting to "crowd out" other government spending.
He, who warned of the risk of a surge in government debt in his book 'How a Country Goes Bankrupt', added that this phenomenon is also occurring in other Western countries.
He warned that global bond yields would continue to rise as government bond supply outweighs demand, ultimately leading to a slowdown in borrowing and growth. At the same time, he recommended diversifying investments and avoiding assets that are sensitive to interest rates.
Rob Arnott, founder of Syzygy asset management, said the key question is when the war-related inflation will end. โTrump wants us to believe that the war will end soon, but there is little evidence that that is the case,โ he said.
He diagnosed, โWe are seeing a bubble right now.โ As the valuation gap between S&P 500 companies and the next 500 companies is extreme, small and mid-cap stocks are expected to perform better over the next few years instead of large-cap stocks that have soared due to the AI โโcraze.
Sonal Desai, global CIO of Franklin Templeton's fixed income division, said, "I do not believe that high interest rates will collapse the economy," but predicted that interest rates would rise further as government borrowing and AI infrastructure investment compete for funds.
He said, โThe bond market is re-evaluating the capabilities of the U.S. economy,โ and advised that investors should focus on securing โstable interest income.โ
CIO Desai said that he is avoiding ultra-long-term bonds, which are vulnerable to additional Fed hikes, but is considering purchasing AI hyperscaler corporate bonds such as Microsoft, Meta, Amazon, and Alphabet.
