(Bloomberg) -- One of Australia’s biggest money managers has used this month’s sell-off in Treasuries as an opportunity to buy longer-dated U.S. bonds, amid rising concern that a global recession may be around the corner.
Monetary policy will be loosened further around the world as growth slows, ensuring a continuation of the “global downdraft in rates,” said Susan Buckley at Brisbane-based QIC Ltd., which manages about A$85 billion ($58 billion). Ten-year Treasury yields could fall between 20 to 30 basis points by the end of the year, she said.
“Going into the Fed meeting and with the back-up in yields, it was a good opportunity to add some duration,” Buckley, managing director for global liquid strategies at QIC, said by phone. “In a full-blown recession scenario, yields could go well below 1%” on 10-year Treasuries, she said.
Easing U.S.-China trade tensions and stronger-than-expected U.S. economic data have sparked a sell-off in bonds this month, re-tracing a chunk of August’s climb.
There are signs that may be losing steam: yields on 10-year Treasuries fell for a fifth-consecutive trading session on Friday after the Federal Reserve cut interest-rates to buoy U.S. growth. They ended last week at 1.72%.
While fund managers from Merian Global Investors to PGIM reckon markets may have seen the lows for Treasury yields this year, Buckley isn’t convinced.
The U.S. and China haven’t reached a concrete agreement on trade and investors are underestimating the risk of a global recession, she said. Her firm sees the chance of a world recession at 40%, Buckley she said, without specifying the time frame.
Oxford Economics puts the probability at 30% for next year. The International Monetary Fund, for its part, views its own July projection of 3.5% growth for 2020 as “precarious” and depending on trade tensions moving toward resolution.
“There is still some follow-through in terms of slowdown in trade flows and manufacturing and the spillover into investment into the major economies like the U.S. and China,” Buckley said. “Europe is already, arguably, in recession.”
(Updates with Treasuries prices in fifth paragraph.)
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