Scott Thiel, deputy chief investment officer of fundamental fixed income, said front-end hard currency government bonds such as those issued from Turkey and Indonesia were presenting good value while not suffering as a result of currency movements.
He said the liquidity withdrawal following the Fed’s decision to taper against such imbalances in the emerging economies showed a strong case for risk-off.
India's inflation under control
But he was also finding Indian bonds attractive, explaining that their low foreign ownership, combined with the credibility of the Bank of India’s governor to tackle inflation made a good investment case.
The European Central Bank kept headline interest rates unchanged on Thursday (6 March). According to its revised inflation forecast, deflationary risks in the eurozone were not an issue. Rather, the ECB expected inflation to "trough soon before slowly rising but staying low for a protracted period", suggesting 1.5% in 2016.
Its growth rate forecast has also been increased for 2014, to 1.2%.
“While acknowledging improved near-term developments, Europe has to focus on structural reforms within member states and fixing the banking system,” Thiel added.
In peripheral Europe, Portugal and Slovenia were his team’s highest conviction plays, with even further narrowing of spreads expected, against bund yields.
Exposure to the UK and US reflected a different view.
Yellen was 'impressive'
Thiel said he was on the whole impressed with Janet Yellen in her semi-annual monetary policy report to Congress last month, describing her as “very deliberate, non-dogmatic and circumspect about the facts”.
That said he had closed off the short US Treasury duration positions but remained short on gilts, although reducing them in line with the play on T-bills.
He said this was on the belief that the improving economic fundamentals may prompt the Bank of England to be the first among the leading developed central banks to tighten monetary policy via an actual rise in interest rates.