Insight Investment, which manages £25 billion in global government bonds, has been buying long-dated U.S. Treasuries in the 10- to 30-year sector. The firm has allocated roughly 5% of its global fixed-income assets to this trade. As a sterling investor, Treasuries offer good value because they are high yielding and the manager can hedge the currency risk cheaply as the dollar continues to be weak versus the pound, says Chris Hartley, London-based director of fixed income. Hartley says the hedge has been working because the forward foreign exchange rate is at a better rate for the sterling investor than the spot rate. The firm has been using this strategy, although on a smaller scale, in the European sovereign bond market.
Over the next three months Hartley says he will be watching the situation in the Middle East very closely for its impact on oil prices. He is concerned that events in the region could lead to further dollar weakness. With that in mind, he is keeping a close eye on the dollar versus the euro for potential opportunities. The firm would go underweight the dollar and overweight the euro to limit downside exposure on the dollar. A level at which the firm would put on such a trade has not yet been decided, says Hartley.
At the moment, Hartley says he has positioned his portfolio for yield curve flattening. To that end, he has been selling short-dated bonds which will be vulnerable to the effects of interest rate hikes, but has been keeping positions in longer dated bonds, which should be reasonably well-supported going forward. He has also been maintaining cash positions. The firm uses a variety of benchmark indices.
