BlackRock's flagship retail fund sold long-dated Treasuries earlier this month, its lead portfolio manager said, on the view financial markets may be too complacent about potentially higher yields as US interest rates are set to rise. Michael Fredericks, who leads a team of more than 20 fund managers managing a total of $45 billion, including the Multi-Asset Income Fund, also told Reuters that financial markets should expect higher volatility after a few years of relative calm.
Like many market players, Fredericks expects the Federal Reserve to raise interest rates in December but his team has a different view on how that would affect the US bond market.
"Markets expect to see a lot of flattening in the yield curve. Markets believe that the 10- and 30-year yields are going to go up very slowly but the front-end, one-year, two-year part of the market will move up very quickly," Fredericks said during his visit to Tokyo earlier this week.
"We think markets are too complacent, too comfortable with the idea that the 10-year and 30-year part of the yield curve will not go up much. We think that's vulnerable," he said.
Even with a December hike priced in, rises in long-dated US bond yields have been limited.
"Right now there is a lot of negative reaction to slowdown in global manufacturing...I think people are extrapolating excessively what they are seeing in global markets," Fredericks said.