M&G bond fund manager Michael Riddell is preparing for the possibility of further quantitative easing in the US and a resulting bond sell-off by shortening the duration of his funds.
US Federal Reserve chairman Ben Bernanke is due to make a speech at Jackson Hole on Friday at the annual central bank conference and may announce a third round of quantitative easing.
In 2008, the Fed initiated a $1.8trn programme of quantitative easing and in November it issued a second round of QE worth $600bn.
Riddell says he shortened the duration of his bond funds last week amid concerns that more easing in the US will prompt a bond sell-off.
He reduced the M&G international sovereign government bond’s duration from 8.3 years to seven years and reduced the M&G index-linked bond’s duration from one year to six months.
He says: “If Ben Bernanke announces more quantitative easing next week, it will prompt a bond sell-off, so I reduced the position I had, which would have benefited from a bond market rally.”
But Henderson head of fixed income John Pattullo says he thinks the effect of a third round of easing on the bond market is already priced in.
He says: “The markets anticipate easing and hence they buy ahead of it with the flight to quality in the markets. The only way there would be a bond sell-off is if the third round of QE is so large that people become worried about inflation.”