The Fed is done hiking, US Treasuries should rally. Do you own any? We favour unhedged on currency

Charlie Jamieson

Jamieson Coote Bonds

This morning the US Federal Reserve removed all further expected rate hikes for 2019 (via its projected 'dot plot' series) in acknowledgement that ''economic growth has slowed''.  They also plan to taper the balance sheet roll off, with a full halt by September this year.  Both of these developments should be bullish for US Treasury Government Bonds.  We have noted in previous investor presentations that the US 10 year Government Bond rate has been at or below the level of Fed Funds at the ''terminal rate'' in every cycle of the last 50 years. 

Did the Fed just go terminal (ie is +2.50% the highest Fed Funds of this cycle)?  We think so, the incoming data globally remains very poor with weakening velocity. This should leave US Treasury Bonds with plenty of runway for continued capital gain. US Government Bonds also have the highest income yields in the G7 by a significant margin, potentially making their expected total returns (bond income plus or minus capital gains) look healthy this year within the defensive asset complex.

JCB still expects further $AUD currency depreciation over the year as the Australian housing recalibration drags on the economy, so our preference for international bond allocations remains on an unhedged currency basis. A defensive allocation on an unhedged currency basis can sling shot performance should the $AUD depreciate, as we have seen in many previous risk market drawdowns. Such an allocation throughout the GFC would have returned more than 50%.

Never miss an update

Stay up to date with the latest news from Jamieson Coote Bonds by hitting the 'follow' button below and you'll be notified every time I post a wire.

As we continue to face volatile market periods, bonds will offer the stability of principal and income, as investors seek the highest quality investments. Find out more.


Charlie Jamieson
Chief Investment Officer
Jamieson Coote Bonds

Charles is a co-founder of Jamieson Coote Bonds (JCB) and oversees portfolio management of the Australian and Global High Grade Bond and Dynamic Alpha investment strategies. Prior to JCB, Charles forged a career as a seasoned bond investor from...

I would like to

Only to be used for sending genuine email enquiries to the Contributor. Livewire Markets Pty Ltd reserves its right to take any legal or other appropriate action in relation to misuse of this service.

Personal Information Collection Statement
Your personal information will be passed to the Contributor and/or its authorised service provider to assist the Contributor to contact you about your investment enquiry. They are required not to use your information for any other purpose. Our privacy policy explains how we store personal information and how you may access, correct or complain about the handling of personal information.

Comments

Please sign in to comment on this wire.