Bets on ‘Year of the Bond’ Persist in Face of Still-Hawkish Fed

Some of the biggest bond managers are sticking to their bullish view on the market for US government debt, even as that trade looks riskier by the day.

Brandywine Global Investment Management, Columbia Threadneedle Investments and Vanguard Group Inc. are keeping the faith that a rousing fixed-income rally is coming, a stance that is being sorely tested by the economy’s resilience and the Federal Reserve’s eyeing of higher interest rates.

Despite increasing risks in the US debt market, major bond managers continue to hold an optimistic stance. Brandywine Global Investment Management, Columbia Threadneedle Investments, and Vanguard Group Inc. remain faithful to their belief in an upcoming fixed-income rally. However, this positive outlook faces challenges from a robust economy and the Federal Reserve’s consideration of higher interest rates.

While some analysts are skeptical, recent data on jobs and economic growth led to a surge in short-maturity Treasury yields, highlighting the volatility some managers wish to avoid. Yet, the bond bulls are undeterred, anticipating the full impact of Fed rate hikes. Bond performance hinges on economic data and the duration of the Fed’s interest rates. Nevertheless, higher bond coupons offer some reassurance to the patient bulls, awaiting the right opportunity to act.