Templeton Bond Guru Sees Pain Coming for Complacent Debt Traders

Shery Ahn and Michael Patterson

Michael Hasenstab, Chief Investment Officer At Templeton Global Macro  Lead manager for the Templeton Global Bond Fund and Templeton Global Total Return Fund with a total net asset of US$ 63.4m  (Templeton Global Bond Fund )  (Templeton Global Total Return Fund )

Michael Hasenstab, Chief Investment Officer At Templeton Global Macro Lead manager for the Templeton Global Bond Fund and Templeton Global Total Return Fund with a total net asset of US$ 63.4m (Templeton Global Bond Fund ) (Templeton Global Total Return Fund )

Franklin Templeton’s Michael Hasenstab says his bond-market peers aren’t prepared for rising U.S. interest rates.

“A lot of investors have gotten very complacent and comfortable with the idea that there’s global deflation and you can go long rates forever,” Hasenstab, whose flagship Templeton Global Bond Fund sits atop Morningstar Inc.’s 10-year performance ranking, said in an interview on Bloomberg Television. “When that reverses, there will be a lot of pain in many of the bond markets.”

Hasenstab, whose contrarian investment approach has delivered annualized returns of about 8 percent over the past decade, said his portfolio has a negative duration in the U.S., meaning that he’s positioned to make money from rising interest rates. He’s bullish on emerging markets, including Malaysia and Mexico, where he sees currencies that have been unfairly punished this year.

After holding its benchmark interest rate near zero for the past seven years, the Federal Reserve is widely expected to begin increasing borrowing costs this month. Treasury two-year note yields reached the highest level since 2010 on Wednesday after Fed Chair Janet Yellen said waiting too long to raise rates may hurt the economy.

Many investors “have a lot of interest-rate risk in their portfolios,” Hasenstab said. “We’ve taken a much different tack.”

The $58.8 billion Templeton Global Bond Fund returned 2 percent over the past month, putting it in the top 1 percent of its peer group and trimming this year’s loss to 1.3 percent, according to data compiled by Bloomberg.

Bloomberg News