Assets in emerging markets drawing investorsFranklin Templeton Investments said it favors assets denominated in some emerging-market currencies and company debt amid prospects for “inevitable” bond-yield gains in major developed economies.
Corporate bonds and notes denominated in the Polish zloty, Mexican peso and Korean won are higher-yielding alternatives to sovereign securities of the U.S., Japan, Germany and the U.K., according to John Beck, a co-director of global fixed income.
“There are a lot of opportunities for us to use medium-term views on some of the smaller currencies, lesser indebted countries and the corporate sector to cushion against what we see as an inevitable rise in risk-free government bond yields,” the London-based Beck, who helps manage $3.4 billion, said Wednesday.
Investors are selling U.S. Treasuries, driving yields up this year for the first time since 2009, as they anticipate a reduction in the Federal Reserve’s purchases of Treasuries and mortgage debt from a rate of $85 billion a month. The advance in yields has been replicated in Japan, where central bankers cited a recovery last month for the first time since 2011, and in the euro area, which European Central Bank President Mario Draghi said is showing signs of economic stabilization.
The yield on Treasuries due in a decade has risen 95 basis points this year. Japanese government bond yields of similar maturity were at 0.82 percent after touching a one-year high of 1 percent in May.
Federal Reserve Chairman Ben S. Bernanke said in June the central bank might start scaling back its monthly bond purchases this year and end it entirely in mid-2014 if the U.S. economy achieves sustained improvement, driving a decline in higher-yielding assets globally.
Bernanke and his board left the pace of asset buying unchanged at a policy meeting this week. Economists surveyed last month by Bloomberg News say Fed officials will trim purchases from September.
“U.S. rates aren’t likely to rise significantly in the next 18 months or so,” Templeton’s Beck said. “We’ve had the opportunity to take a little bit more exposure to some currencies that saw a sharp shakeout after the Fed’s tapering comments, but we feel have reasonable value,” he said, without providing details on the adjustments to holdings.
The Polish zloty has risen 3.1 percent against the greenback this quarter, the best performer among 31 major currencies tracked by Bloomberg. The Korean won has advanced 1.6 percent, while the Mexican peso climbed 0.7 percent.
Polish government bonds have returned 1.2 percent since June 30, while Mexican sovereign debt added 0.2 percent, according Bank of America Merrill Lynch indexes. Korean government notes lost 0.2 percent, while global corporate securities rose 0.5 percent.