Call it the anti-Bill Gross trade.
A growing number of large investors, including BlackRock and Pioneer Investments, are advising clients to bail out of short- and intermediate-maturity bonds on bets that an accelerating economy will raise questions about the Federal Reserve’s promise to keep rates low. Doubts about the Fed’s benchmark rate could hammer intermediate bonds that trade in part based on expectations of when the Fed will hike its key policy rates, they say.
Such calls run counter to the advice of other bond experts like Pimco’s Gross, who advise that moving toward shorter-maturity debt is a beneficial way of alleviating interest rate sensitivity in bond portfolios during a rising-rate environment.
The Federal Reserve has said it will replace its bond-buying stimulus program, due to begin winding down this month, with a promise to keep its target policy rate near zero until well after the unemployment rate drops below 6.5%. But as signs emerge that the economy is picking up steam, the market is beginning to question the length of time before the Fed jacks up rates.
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