The bond market is in a "bubble," particularly sovereign debt, Guggenheim Partners global chief investment officer Scott Minerd warned.
He said that efforts by the Federal Reserve to head off a recession by cutting interest rates will ultimately prove futile.
Minerd, who oversees more than $240 billion in assets under management, said his firm is responding by reducing exposure to corporate credit.
He said the backdrop in monetary policy reminded him of 1998, when the U.S. Federal Reserve slashed rates to fight the Asian financial crisis, only to reverse course less than a year later. Minerd said the central bank's actions helped drive the technology bubble that burst in 2000.
"Where is the bubble today?" Minerd wrote in a letter to clients. "I hate to admit the ugly truth, but it may well be in bonds, and in particular the sovereign debt of governments around the world. The category of supposed 'risk-free' assets has risen to prices which guarantee a loss to investors in many countries around the world." He named Europe and Japan, as examples.
Escalating trade tensions between the United States and China, worsening global growth, political tensions in Europe and more central banks embarking on monetary policy easing has resulted in more than $15.9 trillion of negative-yielding bonds worldwide, as calculated by Deutsche Bank.
Minerd said he doubts the end is near. "The curse of negative rates will be with us for a while, and eventually may reach the shores of the United States," he said.
The yield on the 30-year Treasury bond dropped to a record low last week, breaching the 2% level for the first time. The yield on the long bond is currently trading around 2.10%.
Last week, Minerd told Bloomberg News he believed the Fed should execute a 50-basis-point inter-meeting cut in order to demonstrate its commitment to keeping the economic expansion on track.
The Federal Reserve, which hiked rates four times in 2018, cut rates by 25 basis points at its July policy meeting. Its next scheduled policy meeting is in September, and traders now see another quarter-point cut as the Fed's most likely next move instead of an aggressive half-point one, according to CME Group's FedWatch tool.
Minerd told Reuters in a telephone interview Thursday that his forecast has been "evolving."
Fed policymakers are "inventing the rules as they go along ... they are definitely improvising," Minerd said. "What I was looking at, perhaps incorrectly, was how Fed chair Jay Powell and his colleagues were making decisions.
"They created a third mandate - the Fed wants to avoid the recession," he said. "At the end of the day, there will be recession but the Fed is attempting to forestall it with rate cuts."
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