Deutsche Asset Management plans to maintain an underweight duration because of the positive outlook for the global economy for the next six months. Sven Rump, portfolio manager in Zurich, says he will keep the fund half a year short of its benchmark, the J.P. Morgan Government Bond Index, which currently has a duration of roughly 5.75 years. DeAM manages E16 billion in fixed income assets.
Rump says the firm could even go a little shorter in the near term, but he expects yields to rise once the Federal Reserve raises rates, which he expects could happen in June. Once 10-year government bond yields rise by about 75 basis points, Rump says DeAm will buy longer-dated assets and raise its duration to neutral.
In addition to its core German government bond holdings, DeAM also holds Treasuries and French inflation-linked OATeis, as well as Dutch and Finnish govvies. Rump explains that Dutch and Finnish holdings are a diversification play away from bunds, because German quality isn't what it used to be.
In addition, DeAM's Swiss office has liquidated all of its pfandbrief holdings. Rump says that at 10 basis points over bunds, he doesn't see any value at all in the asset class. He does not see DeAM reentering the pfandbrief market any time soon.
