Top manager Mark Nash, who heads up the Jupiter Strategic Absolute Return Bond Fund, is betting against the market expectations that the Fed will cut interest rates in 2023 and shorting 2-year Treasuries, reports an article in Bloomberg. The Fed’s main priority is to tamp down inflation “and the Fed will not stop until that happens,” Nash said in an interview with Bloomberg, adding that the current policy “is still not tight enough.”
The argument of whether the Fed will reverse course and start cutting rates by the end of this year has become quite heated across markets, with institutional giants such as JPMorgan Asset Management and Pictet Asset Management on opposite sides of the argument. The conflict could fuel volatility in the second half of this year, and 2-year Treasury notes are already volatile thanks to the banking crisis in March. But Nash believes he can accurately predict the Fed’s moves, forecasting that the central bank will hike rates again in June and keep them there at least through the rest of the year in order to cool inflation. On the flip side, swaps traders are pricing in the expectation that the Fed will cut rates around November, pushing the 2-year note about 80 basis points under the high they hit in March. In addition, Nash has also been stockpiling securities similar to cash, like 1- to 2-month U.S. notes, so much so that those now account for roughly 40% of its assets. “We’re keeping risk light, and we’re keeping a lot in cash earning that carry,” Nash told Bloomberg, in an effort to have a portfolio that can withstand an environment of slower growth and reduced inflation.
But the Fed will need to “cause some damage to the economy” in order to really get inflation down for good, Nash insists. Elsewhere in the interview, Nash predicted that the government will reach a deal on the debt ceiling because it’s bad for everyone if the debt defaults. As for foreign investments, Nash told Bloomberg that his fund has some smaller shorts in Japanese bonds, with the expectation that the Bank of Japan will eventually have to tighten their currently-loose monetary policy, but not if the rest of the world enters a downturn. The fund also contains some short credit in the portfolio that can hold up against a recession; though the market is optimistic about “the growth data holding up,” Nash reiterated the “Goldilocks’ environment” the market is anticipating is “just not going to happen.”