Money Managers Brace for Bond-Market Collapse

TheNewBondMarket

 

 

TCW Group Inc. is taking the possibility of a bond-market selloff seriously.

So seriously that the Los Angeles-based money manager, which oversees almost $140 billion of U.S. debt, has been accumulating more and more cash in its credit funds, with the proportion rising to the highest since the 2008 crisis.

“We never realize what the tipping point is until after it happens,” said Jack A. Bass,  head of trading for Jack A. Bass and Associates. “We’re as defensive as we’ve been since pre-crisis.”

Bass isn’t alone: Bond funds are holding about 8 percent of their assets as cash-like securities, the highest proportion since at least 1999, according to FTN Financial, citing Investment Company Institute data.

Cudzil’s reasoning is that the Federal Reserve is moving toward its first interest-rate increase since 2006, and the end of record monetary stimulus will rattle the herds of investors who poured cash into risky debt to try and get some yield.

The shift in policy comes amid a global backdrop that’s not exactly rosy. The Chinese economy is slowing, the outlook for developing nations has grown cloudy, and the tone of Greece’s bailout talks changes daily.

Distorted Markets

Of course, U.S. central bankers are aiming to gently wean markets and companies off zero interest-rate policies. In their ideal scenario, borrowing costs would rise slowly and steadily, debt investors would calmly absorb losses and corporate America would easily adjust to debt that’s a little less cheap amid an improving economy.

That outcome seems less and less likely to Cudzil, as volatility in the bond market climbs.

“If you distort markets for long periods of time and then you remove those distortions, you’re subject to unanticipated volatility,” said Cudzil, who traded high-yield bonds at Morgan Stanley and Deutsche Bank AG . He declined to specify the exact amount of cash he’s holding in the funds he runs.

Price swings will also likely be magnified by investors’ inability to quickly trade bonds, he said. New regulations have made it less profitable for banks to grease the wheels of markets that are traded over the counter and, as a result, they’re devoting fewer traders and money to the operations.

To boot, record-low yields have prompted investors to pile into the same types of risky investors — so it may be even more painful to get out with few potential buyers able to absorb mass selling.

“We think the market’s telling you to upgrade your portfolio,” Bass said. “Whether it happens tomorrow or in six months, do you want look silly before the market sells off or after?”

Contact Details:

Information must proceed action and that is why we offer a no cost / no obligation inquiry service if you are not already a client.

Email :                info@jackbassteam.com

or Call Jack direct at 604-858-3202 – Pacific Time 10:00 –4:;00 Monday to Friday

The main intention of our website is to provide objective and independent information that will help the potential investor to make his own decisions in an informed manner. To this effect we try to explain in a simple language the different processes and the most important figures involved in offshore business and to show the different alternatives that exist, evaluating their pros and cons. On the other hand we intend – in terms of offshore finance, bringing these products to the average citizen.

Do something to help yourself – contact Jack A. Bass now !

 

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s