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DeAM To Lighten Up On Government Holdings

Deutsche Asset Management will sell more U.S. and Japanese government bonds if yields on 10-years move below 4% and 1.4% respectively, according to Ian Winship, head of global interest rates in London.

Ian Winship

Deutsche Asset Management will sell more U.S. and Japanese government bonds if yields on 10-years move below 4% and 1.4% respectively, according to Ian Winship, head of global interest rates in London. Winship is responsible for government bond allocations; overall the manager runs E232 billion in fixed income globally, against a variety of benchmarks. The yield on the U.S. 10-year was 4.17% and on the Japanese 10-year 1.55% on Oct. 6.

The firm has a relatively bullish view on economic growth in the U.S. and Japan, which is leading it to eye a further reduction of its government bond allocation. Winship thinks U.S. interest rates will go to 2-2.25% by the end of 2004, rising to 3-3.5% in 2005 if economic growth remains strong. Gross domestic product growth should come in close to 4% for the second half of the year, he predicted.

As for Japan, Deutsche is very bullish on the economy over a two year horizon. While Winship doesn't expect an immediate economic pick-up, the platform is in place for economic growth, he said. "Short rates are unlikely to go up before 2006, as the Bank of Japan has to build conviction that momentum in growth and inflation is well underpinned," he predicted.

Relative value trades have been more of a focus recently, rather than absolute direction, and Winship prefers trades involving Canada and Europe relative to the U.S. "The European Central Bank is putting out a lot of rhetoric about raising rates, but there remain real problems with the sustainability of growth in Europe and we can't see them taking any action before mid-2005," said Winship.

Winship declined to specify the duration of the manager's model portfolio, except to say DeAM runs a net short duration.

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