Investors should look for cost-effective ways to increase duration as central banks attempt to embark on their first meaningful rate rises, TCW Group’s Laird Landmann has said.
Landmann, who is part of the TCW Group bond team – which oversees $175.6 billion in assets – told Citywire Selector that the Federal Reserve will remain cautious in its ambitions but bond buyers cannot afford to be complacent.
‘I think this is going to be a very interesting part of the cycle, with the exit strategy, to see if the Fed actually follows through. We are going to see the Fed very reluctant to shake up the markets and create volatility. We don’t think they are going to go too far, too fast.’
Landmann, who is named across 11 bond funds, including two Ucits-compliant vehicles, said the current market environment is not common and so anticipating volatility is crucial, as central banks may be forced to make unilateral moves.
‘We are at a unique time given that the false promises of the Trump administration, the tax cuts, the tax reform and infrastructure spending may get markets excited. We may see rates rise faster than naturally expected but for us that will create opportunity to increase duration, as we tend to follow out of consensus thinking.’
‘As rates rise we see it as an opportunity to add bonds at cheaper and we will cross average our duration a little higher across our products. However, we don’t see rates rising too fast as there is too much leverage in the system to allow for a 150-200 bps rise. Anything that gets us a 2.5-3% rise is probably about the maximum we can have in this cycle.’
For a longer video interview with Landmann, stay tuned to Citywire Selector.