◼ FINANCE23MATTHEW
SCOTT
waspartlyoffsetbyholdingsinemerging-market
currencies, until some of those—most notably
Argentina’s—also started to sour this month.
Although it started out small, Hasenstab’s posi-
tion has been growing steadily over the past two
years, quietly becoming the biggest bet against
Treasuries of any major global bond fund. He
shorts Treasuries by buying interest-rate swaps,
a contract investors use to speculate on the level
of interest rates in years ahead.
Hasenstab’s unwavering argument has been
that economic strength in the U.S. will make
today’s low-yielding bonds less attractive, espe-
cially if consumer prices start to rise. The short
position “hedges the risk that rising inflation,a
highrelianceonforeigninvestorstofundincreas-
ingbudgetdeficits,andhighlystimulativemon-
etary policy at a time of solid growth and record
employment, could push longer term interest
rates higher even while shorter term rates remain
low and anchored,” he wrote in an email.
The economics that Hasenstab studied to earn
his Ph.D. might suggest that’s a pretty straightfor-
ward view to take, but textbook economics isn’t
necessarily the best way to navigate the current
market. Take the past month, when the Federal
Reservecutthekeyrate,despitestill-solidgrowth
intheU.S.economy.Andthenthere’sthecurious
phenomenonofnegativeinterestratesinEurope
andJapan,whereinvestorsarewillingtosacrifice
a smallportionofmoneytokeeptheirinvestment
safe.That’salsotendedtopullU.S.bondyields
lower;whenit actuallycostsmoneytolendtothe
Germangovernment,manyglobalinvestorsare
happytobepaideventheyieldoflessthan1.6%
that10-yearTreasuriesoffer.
Otherprominentinvestors,suchasGuggenheim
Partners’Scott Minerd,havealsoquestioned
thelogicofFedratecutsata timeofeconomic
strength.“Byalmosteverymeasurepolicymakers
shouldbeconsideringanotherratehikeinantic-
ipationofpotentialeconomicoverheating,”he
wroteina commentaryonthe$270billionasset
manager’swebsiteinJuly.OnAug.13,however,
MinerdtoldBloombergTelevisionthattheFed
shouldcutratesagaintocalmrecentlyanxious
markets and “send a clear signal” that it won’t
allow a recession.
Trying to predict where rates are headed in the
current environment is a “fool’s game,” according
to Gershon Distenfeld, co-head of fixed income at
AllianceBernstein in New York. Even if it becomes
clear that rates are going to rise, yields won’t neces-
sarily go up in a straight line, he argues. “Who the
heck knows what will happen with bond yields?”Distenfeld asks. “No one thought yields would go
this low. Six months ago, we were talking about
how much they were going to go up.”
Hasenstab is no stranger to taking risks, though,
and some of his past wagers on government bonds
in such countries as Ireland and Hungary have
delivered spectacular returns. And when bond
yields have shot up in recent years, such as in the
aftermathofthe 2016 U.S.presidentialelection,the
fundhashandilyoutperformeditspeers.
“It’s a veryaggressive,high-returnstrategy
that investors need to be patient with,” says
Karin Anderson, director of manager research at
Morningstar Inc., which gives its top analyst rat-
ing of gold to the Templeton Global Bond Fund.
“They have really dug into this position, and I don’t
know that they’re going to walk away from it any-
time soon, because they don’t agree with the Fed’s
approach of being so concerned about external fac-
tors rather than actual U.S. growth.” Still, Anderson
says, if the Treasury short continues to grow and
Treasuries continue to rally, Morningstar might con-
sider putting the fund under review. �Natasha
Doff,withCecileGutscherTHE BOTTOM LINE Hasenstab thinks the Fed’s rate cuts are
courting an increase in inflation. At the moment, the Fed seems
more worried about flagging growth.▲ Hasenstab1/2006 7/2019$80b400● Templeton Global
Bond Fund assets