Schroders makes a rare shift: from “underweight for years” to “slightly overweight” betting on a long-term rebound in US Treasury bonds

According to Jinse Finance APP, British asset management giant Schroders Plc has recently increased its holdings of long-term US Treasuries, believing that after the recent round of sell-offs, yields are close to a cyclical peak. Johanna Kyrklund, Schroders’ Global Chief Investment Officer, said regarding 10-year US Treasuries: “From a valuation perspective, the current level is more attractive than before. Given the recent rise in yields, we think it's appropriate to add some duration exposure now.”

By the end of the second quarter, Schroders managed approximately $1.15 trillion in assets. Kyrklund revealed in an interview on Thursday that the company began to increase duration exposure this summer, further added positions in recent weeks, and adjusted its stance on global bonds from “underweight” to “slightly overweight.” For most periods in the past few years, Schroders had maintained an overall underweight position on bonds.

This assessment comes as bond yields in major global markets soar to multi-year highs. Driven by high oil prices and mounting inflation concerns, expectations for another Federal Reserve rate hike continue to intensify. On Wednesday, the yield on 10-year US Treasuries briefly rose to around 4.82%, a new high since 2023.

“We judge that the current level is roughly at the top of this round’s yield fluctuation range,” said Kyrklund. “The 4.80% to 5% range presents buying value for us, and we expect a tradable rebound ahead, with yields potentially falling back to around 4.5%.”

Nevertheless, many fund managers remain cautious on long-term bonds. Investors’ concerns over fiscal credibility and policy risks have intensified, demanding higher term premiums. Currently, the market generally expects the Federal Reserve to raise rates again this month.

Kyrklund, however, believes: “If the Federal Reserve hikes rates, this expectation has already been fully priced in by the market. If inflation data turns out weaker and the Federal Reserve unexpectedly holds off, the bond market will likely see a rebound.”