Here’s an interesting bull/bear face off on US government bonds. In one corner we have permabull (on equities) Ken Heebner who recently made headlines when he stepped outside of his micro focus and into the macro arena to invest 21% of his CGM Focus Fund in a short position against US Treasury bonds. According to Bloomberg:
Money manager Kenneth Heebner, convinced that a growing U.S. economy will eventually prompt the Federal Reserve to boost interest rates, has bet 21 percent of his CGM Focus Fund (CGMFX) on a decline in U.S. Treasuries.
“We established a significant short position in U.S. Treasury bonds in anticipation of what we believe will be a stronger U.S. economy going forward,” Heebner said in a Jan. 2 letter included in the filing.
In the other corner is Jeff Gundlach of DoubleLine who has recently turned increasingly bullish on US government bonds. Gundlach is less confident in economic growth than Heebner is. Via Reuters:
“I bought more long-term Treasuries in the last month than I’ve bought in four years. I am a fan of Treasuries now. I wasn’t a fan of Treasuries in July,” said Gundlach, chief investment officer and chief executive officer of DoubleLine Capital.
“They looked cheap at a yield above 2 percent, compared to certain riskier assets, which had gone up in price over the last six months while Treasury prices fell,” he said. “Also, owning 10-year Treasuries at yields above 2 percent provides an offset to credit risk we are taking elsewhere in the portfolio.”
The investor, who was dubbed by Barron’s as the new “King of Bonds” two years ago, said he thinks the recent rally in stocks, which last week drove the Dow Jones industrial average within 75 points of its record close of 14,164.53, has gone too far.”
So we have a bond manager against an equity manager who is shorting bonds based on what is actually a form of a bullish equity bet. Who do you think is right?
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.
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