Black­Rock joins Pimco warn­ing in­vestors to seek in­fla­tion hedge

The Pak Banker - - COMPANIES/BOSS -

Black­Rock Inc. joined Pa­cific In­vest­ment Man­age­ment Co. in rec­om­mend­ing in­fla­tion-linked bonds and warn­ing costs are poised to pick up. "Sta­bi­liz­ing oil prices and a tighter la­bor mar­ket could con­trib­ute to ris­ing ac­tual, and ex­pected, U.S. in­fla­tion," Richard Turnill, Black­Rock's global chief in­vest­ment strate­gist, wrote Mon­day on the com­pany's web­site. "We like in­fla­tion-linked bonds and gold as di­ver­si­fiers." New York-based Black­Rock man­ages $4.6 tril­lion.

Fed­eral Re­serve Chair Janet Yellen will get a chance to give her views in a speech Tues­day at 12:20 p.m. in New York. Pimco, which man­ages the $87.8 bil­lion To­tal Re­turn Fund, and Black­Rock have both told in­vestors this year that in­fla­tion is pick­ing up. Fed of­fi­cials Stan­ley Fis­cher and James Bullard chimed in this month to say costs are in­creas­ing, driv­ing spec­u­la­tion the cen­tral bank is mov­ing closer to rais­ing in­ter­est rates.

The U.S. 10-year note yield fell two ba­sis points, or 0.02 per­cent­age point, to 1.87 per­cent as of 10:36 a.m. Lon­don time, ac­cord­ing to Bloomberg Bond Trader data. The 1.625 per­cent se­cu­rity due in Fe­bru­ary 2026 rose 5/32, or $1.56 per $1,000 face amount, to 97 26/32.

The Trea­sury Depart­ment is sched­uled to sell $34 bil­lion of fiveyear notes on Tues­day, which yielded 1.37 per­cent in pre-auc­tion trad­ing.

The Black­Rock In­fla­tion Pro­tected Bond Port­fo­lio has lost 1.5 per­cent dur­ing the past 12 months, while the Pimco Real Re­turn Fund has lost 1.8 per­cent, based on data com­piled by Bloomberg. Both funds were beaten by more than 60 per­cent of their peers.

"It's a very cheap hedge to buy in­fla­tion-linked bonds at the mo­ment," said Jens Peter So­erensen, chief an­a­lyst at Danske Bank A/S in Copen­hagen. "If oil prices bounce back to $60-$70, then you can get a short-term spike in in­fla­tion and then you can gain in your linker bonds."

The Trea­sury mar­ket in­fla­tion outlook and oil prices have both risen from lows for the year set in Fe­bru­ary. A gov­ern­ment re­port April 1 will show U.S. em­ploy­ers added 210,000 work­ers in March, af­ter hir­ing 242,000 in Fe­bru­ary, ac­cord­ing to a Bloomberg sur­vey of econ­o­mists.

The dif­fer­ence be­tween yields on 10-year notes and sim­i­lar-ma­tu­rity Trea­sury In­fla­tion Pro­tected Se­cu­ri­ties, a gauge of trader ex­pec­ta­tions for con­sumer prices, has in­creased to 1.56 per­cent­age points from as low as 1.12 on Feb. 11. It's still be­low its av­er­age of 2.08 for the past decade.

"In­fla­tion ex­pec­ta­tions have in­creased re­cently with com­mod­ity prices," said Will Tseng, a bond man­ager in Taipei for Mi­rae As­set Global In­vest­ments Co., which over­sees $73 bil­lion. "The risk is that the Fed will get more hawk­ish." Tseng said he's sell­ing emerg­ing-mar­ket bonds to trim his hold­ings of riskier se­cu­ri­ties and hold­ing the pro­ceeds in cash. He's avoid­ing buy­ing more Trea­suries in case Fed com­ments send yields higher, he said.

The Fed's pre­ferred in­fla­tion gauge rose 1 per­cent in Fe­bru­ary, a re­port showed Mon­day, half of the cen­tral bank's tar­get of 2 per­cent.

"We may well at present be see­ing the first stir­rings of an in­crease in the in­fla­tion rate -- some­thing that we would like to hap­pen," Fis­cher, vice chair­man of the Fed Board of Gov­er­nors, said this month.

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